What Happens if the House You're Buying Does Not Appraise?
If you are purchasing a home and financing it with a mortgage, the bank will require an appraisal of the property to determine its market value before committing to a mortgage. They determine the dollar amount they are willing to lend you based on the appraised value of the house as opposed to the purchase price of the house. Hopefully the two numbers will be one and the same.
But, what happens if the house you're buying does not appraise, and the appraised value is less than the agreed upon purchase price? You've got several options.
- You can renegotiate the deal and try and get the seller to drop the price to the appraised value. This is the best option. It will allow the sale to go thru as planned. If the seller refuses to drop the price, he runs the risk of losing his buyer and in all probability the next buyer that comes along will have the same problem of the home not appraising. No one wants to purchase a home at a higher than market value price.
- The buyer can make up the difference between the appraised value and the agreed upon sale price by putting extra cash down. Of coarse this is only an option if he has the cash and if he's willing to purchase a home at a higher than market value price. If this is the house of his dreams, then it may just be the seller's lucky day!
- The seller and the buyer split the difference and meet somewhere in middle. The seller reduces the price somewhat and the buyer brings cash to the table. This is the most frequent solutions.
You can cancel the transaction. If all else fails and your purchase offer was contingent on mortgage and appraisal, then you could walk away from the deal and still get your deposit money back.
If none of the above options work there still remains one other possibility. The buyer can try to get the appraisal adjusted. Appraisals are based on the choice of comparable sales within the past 60 days within a radius of a few miles, and within 10% variance in size. If you know of any homes in the immediate area that are pending sales, similar in size and value, that the appraiser overlooked, you can offer it up for consideration. It's worth a try!
Hopefully, you and your realtor have done your homework and your offer based on the current market stats will have no appraisal issues. But, not to worry if there are glitches; most can be remedied.
If you're looking for a home in Suffern NY or anywhere else in Rockland County, I'll be happy to be your guide and help you navigate through the home buying process and smooth the bumps along the way..