When you’ve accepted an offer on your home, it’s an exciting time, as it means you’re getting close to finishing the sale and moving on to the next phase of your life. As part of the underwriting process for the mortgage lender, a home appraisal is performed to determine the value of the property.
When a home is appraised, the seller wants the value to be the same value or more than the accepted offer. However, there are times when the offer is lower, even significantly lower. Even for buyers, a lower appraisal isn’t always the best situation. While it can be a good thing, it may also involve some negotiations that complicate the process.
If a lower appraisal situation happens to you, it can be frustrating, and you may wonder what to do next. Luckily, there are solutions to help both buyer and seller feel happy about moving forward.
What You Can Do As A Buyer
A lower home appraisal can be complex for a buyer as the lender will often ask for more money down due to the loan-to-value ratio. So, while a lower-than-expected assessment might seem good for the buyer, this isn’t always the case.
But, there are some ways to avoid putting more money down for your home loan. Here are some approaches to consider:
- Try working with the seller to arrive at a lower offer.
- You can cancel the contract as long as there’s an appraisal contingency in place.
- You can work with the seller and agree to get a second appraisal.
The appraisal contingency is often in contracts for real estate purchases. Before you ever go about signing the contract, ensure there is a clause to protect you. This clause allows buyers to end the contract if the appraisal is lower than expected.
The Importance Of Not Paying More Than The Appraisal
Depending on how hot the market is in your area, it’s sometimes common to pay more than a home is worth. But, if possible, it’s best to bide your time to purchase a property at fair market value.
If an appraisal comes in that is lower than your original offer, you’ll need to decide if it’s worth the extra money or not.
When considering if it’s worth paying over the appraisal for the home, you should take into mind a few things, such as:
- Do you have the money to pay for a larger mortgage payment each month?
- Will you own the home for a long enough time that it will make the closing costs worth it?
- Will you build enough equity to offset paying more?
- Is the house worth it to you, and does it meet needs that no other place could?
Deciding if paying more than a property is worth it is a personal decision. While it’s not always the wisest financial move, you know your situation best. If you find a home worth paying extra for and it meets your checklist more than any other, it could make sense to you. And, if you are paying cash or if mortgage payments aren’t a concern, spending more money may not impact your financial situation much.
However, it’s wise to work with your real estate agent and the seller’s agent to try and negotiate a fair dealer after your initial offer was accepted. Overall, the best way to protect yourself is to have an appraisal contingency in place from the beginning, so you won’t be stuck in a contract that no longer makes sense.