What happens when the appraisal comes in low? It doesn't happen often, but on rare occasions, an appraiser will value the home lower than the contracted sales price.
If you are the buyer, you are probably happy that you might be getting the house for less than you were planning to spend. But if you are the seller, you have a problem.
In Texas, the sales contract allows for the contract to be terminated, and the earnest money returned to the buyer, if the house appraises for less than the contracted sales price. It also allows the buyer to pay the difference in cash if they still want the property. Both buyer and seller are faced with some decisions when this happens.
As the seller, your options are limited.
1. Your Realtor can ask the lender to request an appeal of the appraisal and can provide additional information for the appraiser's consideration. Perhaps your Realtor can provide additional recent comps that support the contracted sales price, or provide additional information about upgrades and recent renovations to the property that might add value. Realtors are not allowed to speak directly to the appraiser, and neither are the lenders, but the lender can request a review of the appraisal. It is certainly worth a try, although it is generally unlikely that the appraiser will revise the report.
2. You can negotiate with the buyer to meet somewhere between the contracted sales price and the appraisal value. The buyer would have to make up that difference in cash, and if they really want the house, they might be willing to do that.
3. You can terminate the contract, return the earnest money to the buyer, and hope that the appraisal for the next buyer will be better. However, if the appraisal was for an FHA loan, that appraisal stays with the home for six months. So, in order to get a new FHA appraisal, you would have to wait six months from the date of the original appraisal. Otherwise, you would have to find a new buyer who is getting a conventional loan.
4. You can reduce the price of the home to the appraised value and move forward with the sale. This can be a tough pill to swallow, but often it is the best option for the seller.
Most Realtors will help you price your home correctly to begin with, to help avoid appraisal problems. But if an appraisal problem does come up, you will have to make some tough choices. Your Realtor will help you find the best solution if this happens.
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