THE APPRAISAL

The dollar amount the bank will lend you is based on the appraised value of the house rather than the agreed-upon purchase price between the buyer and the seller The house you are buying may come in at a higher price or lower value depending on its comparable age, square footage, physical attributes, and number of bedrooms and bathrooms.

Since today's buyers and sellers are savvier and more informed about a home's "going price", houses are much less likely to fall below their appraisal price than in years past. However, fair market values can shift, potentially adjusting your appraisal by thousands. If this happens to you consider the following options:

Renegotiate The Deal With The Seller

You can ask the seller to drop the purchase price to the appraised value. The seller may be willing to do this if the property was on the market for several months. If they do not lower the price, the seller risks losing you as a buyer. They will have to incur the trouble of putting their property back on the market again and it may take some time to receive another offer Additionally, the next buyer may incur the same problem with the appraisal. Unless the home is in a highly desirable and competitive area, you will have the advantage of negotiating with the seller.

Make Up The Difference

If you have the financial means, you can make up the difference between the purchase price and the appraised value by putting extra cash down. If there were multiple offers on the house, another buyer may be willing to pay above the appraisal value, so the seller may be less likely to negotiate with you. If this is the house of your dreams and will be your "forever" home, you may want to pursue this option

Split The Difference

The seller and buyer can split the difference. The seller can reduce the purchase price by a certain amount and the buyer makes up the difference by bringing cash to the table if the seller has shown good faith in the transaction, for instance, by being fair and reasonable in responding to repairs requested as a result of the home inspection, you may want to go this route. In my experience, this is the most common solution when there is a difference between the purchase price and appraisal value

Request A Second Appraisal

Either the buyer or seller requests a second appraisal. If the sellers were surprised by the home's lower-than-expected appraisal value, they may opt to pay for the second appraisal, which will still be ordered by the buyer's lender. If there were attributes of the home that were overlooked or if recent comps in the immediate area were not included in the original appraisal, this should be pointed out to the second appraiser. The second appraisal could come in higher if the first appraiser was inexperienced or was out of the area

Cancel The Transaction

Most purchase agreements that contain financing include loan and appraisal contingencies. If the appraisal comes in low and all else fails, a buyer can cancel the transaction and request to receive back their earnest money deposit. However, buyers should be aware of contingency deadlines. For instance, a 10-day appraisal deadline means that the appraisal must be performed within 10 days after the contract ratification date. If the deadline is missed then the contingency is no longer in effect