What if the Home I am Buying Does not Appraise for the Selling Price?

Real Estate Agent with The Buyers' Counsel

House on MoneyWhat if the Home I am Buying Does not Appraise for the Selling Price? 

A crucial step in home buying is the home appraisal. This is part of the mortgage process and must be done as soon as you are ready to proceed with your loan.  Following your home inspection you should give the "go-ahead" to your bank to send out an appraiser. 

But, what if the home does not appraise for the offer price?

If the property you are planning on purchasing is unique or there have simply not been many sales of similar homes in the area, arriving at a fair offer price can sometimes be a challenge. 

In a slow or declining market there may not have been many sales of similar homes in the town you are looking in. This factor could also have an effect on the appraisal outcome.  

To arrive at an offer price, your buyer agent should have put together an analysis for you of all of the homes in the area that have sold, preferably within a mile of the home and within the past three to six months.  These homes will have a similar square footage and be in the same age range, i.e., a newly constructed home is not a comparable sale for a home that was built in 1952. 

As a precautionary measure, I also usually put in the offer to purchase that home "must appraise for the sale price."  This acts as an insurance policy that the analysis that I have done on the property is accurate.  It also gives you as a buyer the option of withdrawing from the transaction if the appraisal comes in lower than the price you have agreed to pay.  

Additionally, it gives you some leverage to renegotiate the sale price with the seller.  If the seller feels that you can and may walk away there will be some pressure to lower the price to the appraisal amount. 

You should keep in mind, however, that no one is infallible and a property appraisal is not an exact science.  At best, it is an attempt to determine what the home is worth based on a number of different evaluation methods. This is usually done by the "Sales Comparison Approach" comparing your home with sales of similar properties.  This method is subjective since no two homes are exactly alike. 

In the event that the appraisal does not come in at the sale price you could get a second opinion. It is possible that the appraiser did not use the most appropriate comparable sales for the home.  They could be challenged.  A second appraiser may have a different valuation. 

If the contract price for the home you are buying is $600,000 and the appraisal comes in at $595,000 does that mean you should walk away?  Not necessarily, but with the "property must appraise" phrase contained in the offer you at least have options. 

You can make the decision to proceed with purchase, renegotiate with the seller or choose to get out of the transaction completely with your deposit refunded.


"What if the Home I am Buying Does not Appraise for the Selling Price?"

This post was written by 

Claudette Millette, Broker, Owner, The Buyers' Counsel - (508) 881-6230

An Exclusive Buyer Brokerage serving the Greater Metrowest area

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Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Claudette: This is great information. I too would encourage people to stick with the transaction, especially if the numbers are close. Thanks again!

Feb 08, 2011 08:02 AM #16
Bob & Leilani Souza
Souza Realty 916.408.5500 - Roseville, CA
Greater Sacramento Area Homes, Land & Investments

Claudette, congratulations on your featured post! It is well-written and offers a concise explanation as to "what happens" if a home doesn't appraise. :)


Feb 08, 2011 08:30 AM #17
Lydia Lucas
Prudential CT Realty - Milford, CT

Great information especially in this market. For my buyer's protection, I always write "Subject to bank appraisal as to accepted price" with our offer. In case the property appraised lower than the accepted price, the buyer can back out of the deal or the seller can lower the price equivalent to the appraised value.

Feb 08, 2011 08:38 AM #18
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Good points, and post! Claudette.  What happens with the appraisal is a good talking point to have with buyers and sellers.  Having this come up a few times, it's always a back to the drawing board, and if there's no mutual agreement . . . mights things interesting for sure.

Feb 08, 2011 09:06 AM #19
Eric Fischer
Coldwell Banker Pioneer Real Estate - Moreno Valley, CA
Moreno Valley, CA Realtor

Hey Caludette,


Great Explanation. I have always said that pricing is more of an art than a science.



Feb 08, 2011 09:21 AM #20
Craig Hatcher
Georgia Residential Realty, LLC - Atlanta, GA

Nice post, very concise.

Feb 08, 2011 09:27 AM #21
Barbara Altieri
RealtyQuest/Kinard Realty Group, Fairfield and New Haven County CT Real Estate - Shelton, CT
REALTOR-Fairfield County CT Homes/Condos For Sale

Claudette -- I ALWAYS put the 'property must appraise.." into the contract.  I had one agent tell me once, 'Well, that's understood'.  Sorry, I want it in writing.  It did happen to me once last year. The sellers came down to the sales price without issue.

Feb 08, 2011 09:27 AM #22
Bill Burchard
3B Realty: 951-347-3818, CA - Murrieta, CA
Broker, Realtor, Representing Buyers and Sellers

Nice post, Claudette. Appraisals have been tough these last couple of years in my neck of the woods due to so many short sales and foreclosures driving home values down, thus affecting standard sales. And appraisal values are critical in determining just how much a lender is willing to lend. A buyer may have agreed to purchase the home for $600,000, but if the appraisal comes in at, say, $575,000, then that lower number is what the lender will use. (And that’s one reason why home sellers should not price their home too high… because buyers may not get the loan they need to buy the overpriced home.)

Feb 08, 2011 09:33 AM #23
Jesse Skolkin
Independent New York State Certified Real Estate Appraiser - Fresh Meadows, NY

I have found appraisal contingency clauses becoming more common these days.

Appraising is not an exact science.  The definition of an appraisal is an opinion of value for a particular purpose at a specific point in time.

Feb 08, 2011 09:48 AM #24
John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Thanks for the good post, Claudette!  I see that appraisal contingency on nearly all contracts that come through my office, thankfully.  In the current market (especially with the HVCC code) appraisals can be a crapshoot, always best to protect a buyer and their deposit!

Feb 08, 2011 09:51 AM #25
Kristi Hancock
SEI Real Estate Professionals - Holbrook, AZ

Great Post! Appraisals can be tricky business. It is always best to protect your buyer. If I feel the house is priced too high then I always ask the seller to pay for the appraisal. I don't want my buyer to be out the money when the appraisal comes in too low.

Feb 08, 2011 09:59 AM #26
Yvonne Jaramillo Ahearn, Esq. (B)
Hawaii Life Real Estate Brokers - Kailua, HI

Thanks for the post. Great ideas in all the commentary, as well!

Feb 08, 2011 10:11 AM #27
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Claudette:  You prove a valuable point, one that I repeat like a mantra within my posts and business.  The real estate professionals with which you choose to conduct your real estate transaction will make a huge difference to the success of your transaction.  In most cases, it will also dictate just how smoothly your transaction proceeds along.  These days, no one can predict every twist and turn that a transaction might make.  But, the leverage you add in protection for your clients with the inclusion of your appraisal statement cannot be understated.  Working with a Realtor that has experience and knows the benefits that their clients will derive from this simple inclusion cannot be understated either. 

Ours is not a "cookie-cutter" industry.  Real estate professionals are not all equal.  Appraisals are just one of the many facets of current transactions where the differences between the quality of professionals can rear its ugly head.  Having taken the time to find the most qualified, experienced, and educated professionals prior to starting your home buying, can mean the difference between success and failure of your transaction.  Your post proves that beyond a shadow of a doubt.  Hopefully your clients realize they chose wisely ...


Feb 08, 2011 10:13 AM #28
Patricia Aulson
Realtor - Portsmouth NH Homes-Hampton NH Homes

Hey thanks for the post today.  I enjoyed the read.  Good comments as well.

I always put in the clause "property must appraise at selling price or higher, failing which at the buyers descretion this contract will/can be terminated"  

This is like life insurance.....


Patricia/Seacoast NH & me

Feb 08, 2011 11:56 AM #29
Ryan Case
SCA Real Estate - Anaheim, CA

You renegotiate the price! Never advise a buyer to pay over appraised value!

Feb 08, 2011 12:19 PM #30
Toula Rosebrock
Diane Turton, Realtors, Forked River, NJ - Lacey Township, NJ
Broker/Sales Associate, Realtor, Lacey Township,

Hi Claudette:

Great post...

This is a situation that we are faced with many transactions these days, to the point that we worry about every appraisal.

Feb 08, 2011 02:28 PM #31
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Claudette -- Great points.  When it doesn't appraise, things can unravel rather quickly, depending on the amount the value is off.

Feb 08, 2011 02:52 PM #32
Mark Peek
Roseville Rocklin Real Estate - Keller Williams - Roseville, CA
Peek Real Estate Group - Roseville CA Real Estate

If it is an FHA appraisal, it will stick with the house for 4-6 months. 

Feb 08, 2011 04:13 PM #33
Anthony Daniels
Coldwell Banker - San Francisco, CA
SF Bay Area REO Specialist

A good listing agent should already know what the property will appraise for.  This is crucial for REO's.  When I see multiple offers written over asking AND subject to appraisal, I advise my asset manager against acceptance.  That trick is just too old and played out.

Feb 08, 2011 04:17 PM #34
Evelyn Kennedy
Alain Pinel Realtors - Alameda, CA
Alameda, Real Estate, Alameda, CA


Good post.  The situation is not unique in this market.  Sometimes the seller and buyer agree to split the difference if it is a reasonable amount. 

Feb 08, 2011 04:41 PM #35
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