If you are purchasing a home and the appraised value comes in lower than the sales price, this can be a deal-killer for many buyers. Lenders calculate the loan amount based on the lesser of the purchase price or the appraised value. If you’re at the Loan-to-Value ratio limit; for instance, you’re just putting 20% down, then this will affect you more greatly than if you’re putting down a flat amount that has no affect on the LTV ratio and the type of loan or interest rate you qualify for. Assuming it does make a difference, as it does for most buyers, then you will have a few choices on how to proceed:
- Attempt to appeal the appraiser’s valuation. Be prepared with at least 2 strong comps that are arguably “better” than the comps the appraiser selected. “Better” means more similar to the home you are buying (in square footage, bed/bath count, lot size…) as well as closer to the home you are buying (more indicative of the neighborhood prices).
- Negotiate the sales price down.
- Pay the additional difference in the sales price and appraised value.
- Back out of the contract. If you have an appraisal report contingency and you did not remove it, then you do not have to forfeit your earnest money deposit.
This is actually the usual order of the process as well. Appealing value takes a few days, but sellers have an interest and a hand in this as well; they usually will not want to negotiate the sales price down, but it has happened in the past. If they refuse to reduce the purchase price, then the option goes back to you, to either pay the difference or walk out and find a new home.
