What Happens When the Appraisal comes in Low?

By
Real Estate Broker/Owner with House to Home, Inc. - Denver Real Estate - 720-231-6373 DRE# ER40011786

 

Home valueIf a Buyer will be financing a property, there will be an appraisal ordered.  (a few exceptions may be considered)     Buyers in Denver always ask about this process, as being in a strong Seller's market, some Buyers are making offers over List Price.   Some of these prices are over Fair Market value, and concerns arise about whether or not the property will appraise.

 

That is always a great conversation to have so Buyers know what their options are if a property does not appraise.    If the home appraises at fair market value, and the contract purchase price is $25,000 above, you should address this gap in the contract.   In the current market, the buyer will pay for the amount offered over appraised value.   (This is in addition to the down payment and closing costs.) 

 

If the contract is for a VA loan, and the appraiser has taken a general look and knows the home won't appraise, they will call a "tidewater".  This gives both agents to provide more information to bring up the price.    If there is a gap between the appraisal amount and contract purchase price, this amount needs to be addressed in the contract.

 

Buyers have asked if they will be "underwater", but the homes are increasing from 15-25% right now, so it will take a few months to make up this price.   If they plan to move before a few months, they probably should not overpay.

 

 

Posted by

Joan Cox
Broker/Owner, REALTOR®
House to Home, Inc.

Serving the Denver Metro area including all suburbs


Helping Buyers and Sellers achieve their real estate dreams, one house at a time!

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Comments (38)

Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Grant, that is so true, they need to know financially how it will play out.  Surprises are not exciting!  

Jan 21, 2022 08:44 AM
Pat Champion
John Roberts Realty - Eustis, FL
Call the "CHAMPION" for all your real estate needs

This is a great post and topic we should be having with all buyers in any  market. Thanks for sharing. I hope you have a great weekend.

Jan 21, 2022 09:21 AM
Gwen Fowler-864-710-4518 SC * Mountain* Lake*Home
Gwen Fowler Real Estate, Inc - Walhalla, SC
Gwen Fowler Real Estate, Inc.

Thanks for the information.

 

Jan 21, 2022 10:50 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Pat, we are seeing multiple offers everywhere still, so this conversation has to happen before writing an offer.

Jan 21, 2022 02:15 PM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Thanks Gwen.

Jan 21, 2022 02:15 PM
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

In the current market, that appraisal gap is almost nonexistent as buyers don't care as long as they get the house.  It may bite purchases down the road when the market turns back to a buyer's advantage

Jan 21, 2022 03:37 PM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Ed Silva I wrote an offer last year for buyers that included a $62,500 appraisal gap, that seemed like A LOT!  

Jan 21, 2022 03:50 PM
Kathy Streib
Cypress, TX
Retired Home Stager/Redesign

Hi Joan- I'm sure that this is a question that many buyers have and you've provided an easily understood answer. 

Jan 21, 2022 06:13 PM
Paddy Deighan MBA JD PhD
federalfinanciallawgroup.com - Vail, CO
Paddy Deighan J.D. Ph.D

Low appraisals can be a wake up call to sellers but sometimes the appraisal contains helpful hints to bring the value up or at least bring realistic expectations to the selle

Jan 21, 2022 08:45 PM
Brian England
Arizona Focus Realty - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

Appraisals can kill or save a deal and it really hurts when one person's opinion seems to differ from what the comps actually say.

Jan 22, 2022 04:08 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Kathy, buyers are worried about paying so much over the fair market value, but if they don't, they won't get a home right now.

Jan 22, 2022 06:48 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Paddy, Sellers know buyers in our market will offer more than list price, and counting on it actually.

Jan 22, 2022 06:49 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Brian, have had a few that I disagreed with severely, but others that came in much higher than expected too.

Jan 22, 2022 06:49 AM
Jim Paulson
Progressive Realty (Boise Idaho) www.Progressive-Realty.info - Boise, ID
Owner,Broker

Last year I had a home not appraise.  I had the buyer and they were willing to pay the purchase price.  However, since I represented the buyer, not the seller, I asked the listing agent to try to show her comps to the appraiser to see if he would raise his #.  Fortunately for my buyer's, the listing agent didn't even try and sent us an addendum to lower the price to the appraisal.  My clients were two ladies who were legally married.  I told them "I know you are not into men, but I think you both owe me a kiss." LOL

Jan 22, 2022 02:22 PM
Mike Frazier
Carousel Realty of Dyer County - Dyersburg, TN
Northwest Tennessee Realtor

I bet where there are  multiple offers and negotiated price is higher that appraisal that follows there can be real stress. I tell my clients what the market value is and let them make the choice. Falling in love with a property is often not a good idea before purchase or attempted purchase.

Jan 23, 2022 04:53 PM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Jim Paulson this is happening with most transactions here, and the Sellers WON'T lower the price, so your clients were very lucky.   They DO owe you a kiss!   LOL

Jan 24, 2022 06:59 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Mike Frazier sometimes my clients fall in love before they secure the property, and with multiple offers, they are devastated when they don't win the bid.   It has been an emotional roller coaster for a couple of years.

Jan 24, 2022 07:00 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

With almost every listing lately, we are seeing multiple offers again, as we have so few listings available.

Jan 24, 2022 07:01 AM
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Great post!  I so appreciate this post and so will many VA buyers looking in Denver and beyond.  We've down 1000 listings as of 1/1!  

Jan 25, 2022 04:32 PM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Jan Green that is a very low inventory in your area!  

Jan 26, 2022 06:48 AM