You've found your dream home, your offer has been accepted, and you're eagerly awaiting the final steps of the buying process. Then, the unexpected happens: the appraisal comes in lower than your agreed sale price. This scenario can be a common hurdle in the home-buying journey, but don't worry – you have options. In this post, we'll explore what you can do if you find yourself in this situation.
Understanding the Appraisal Gap
First, it's important to understand why this gap matters. Lenders use the appraised value of a property to determine the amount they're willing to lend. If the appraisal is lower than the sale price, the lender sees it as a risk, as they're lending more money than the home is worth. This is where you, as the buyer, need to make some decisions.
Option 1: Covering the Difference
The most straightforward solution is to pay the difference between the appraisal and the sale price out of your pocket. For example, if you agreed to buy a home for $300,000 but it appraises for $280,000, you would need to cover the $20,000 difference yourself, in addition to your planned down payment. This option requires having extra cash on hand, which may not be feasible for every buyer.
Option 2: Appealing the Appraisal
If paying the difference isn't an option, you might consider appealing the appraisal. This involves providing additional information to the appraiser, such as recent comparable sales (comps) that were not considered in the initial appraisal. While appealing can be effective, it's not a guaranteed fix. The success of an appeal depends on the validity of your information and the appraiser's receptiveness.
Option 3: Renegotiating the Sale Price
Another route is to renegotiate the sale price with the seller. In a buyer's market, sellers might be more willing to lower the price to the appraised value to ensure the sale goes through. However, in a seller's market, this can be more challenging, as the seller might have other offers waiting in the wings.
Conclusion: Weighing Your Options
Dealing with a low appraisal can be stressful, but it's a manageable part of the home-buying process. Each option has its pros and cons, and the right choice depends on your financial situation, the current housing market, and the specific details of your home purchase. It's also wise to consult with your real estate agent and financial advisor to make the best decision for your circumstances.
Remember, being informed and prepared for every possibility is key to navigating the home-buying journey successfully. A low appraisal doesn't have to be a deal-breaker – with the right approach, you can still make your dream home a reality.