You have finally found your dream home. You’ve negotiated with the home seller on a price that you feel happy about. You and your family are so excited about moving into this house. Then the appraisal report comes in. You discover that the home has been given a value that is lower than your purchase price. This is a situation where the Home Appraisal is Lower Than the Offer.
What do you do now?
Secure your dream home after a low home appraisal with these strategies. There are strategies you can employ to keep your home purchase on track. Here are five key strategies:
1. Understand the Appraisal Process
Before diving into solutions, it’s crucial to understand why appraisals can come in low. An appraisal is an unbiased professional opinion of a home’s value and is used by lenders to ensure the property is worth the loan amount.
The appraisal takes place as early as possible after the home buyer gets a firm mortgage approval from a lender and accepts it. As early as possible is important to allow enough time to schedule a property visit and production of the report. A lender will select a home appraiser who will contact the seller to set a time and date for a home visit.
The appraisal value is influenced by recent sales of similar properties, the condition of the home, and the current market trends. Knowing this can help you navigate the next steps more effectively.
2. Challenge the Appraisal
- Gather Evidence: If you believe the appraisal is incorrect, gather evidence of higher comparable sales in your area that the appraiser might have missed.
- Request a Review: Ask the appraiser to reconsider their evaluation with the new information.
- Second Opinion: If the first appraiser stands by their assessment, consider getting a second opinion. However, the lender is not obligated to accept a different appraisal.
3. Negotiate with the Seller
- Share the Appraisal: Sometimes, sellers are willing to renegotiate the price based on a low appraisal, especially if it means the sale could fall through otherwise.
- Split the Difference: If the seller is hesitant to drop the price to the appraised value, you could propose meeting halfway. This compromise might be enough to keep both parties happy.
Especially in today’s market, sellers are highly motivated to help you close the purchase so that they can move on with their own journey.
4. Consider Your Financing Options
If renegotiation with the seller does not go as hoped, there are a couple of things to consider…
- Increase Your Down Payment: If you have the means, you can make up the difference between the loan amount and the purchase price by increasing your down payment.
- Look for Alternative Financing: Some lenders (i.e. b lenders and private mortgage lenders) might be willing to work with a low appraisal, especially if you have an excellent credit history or if you’re willing to take a higher interest rate.
Experienced mortgage brokers like Effortless Mortgage might be able to push the deal across the finish line with the same valuation. They might have other appraisers that can provide you with a second opinion and they might be able to get you an exception with the lenders due to their strong relationships with them. Do not try to keep working things out with the existing lender, if it’s not working. It is time to shop. Time is of the essence.
5. Explore Other Avenues
- Seller Financing: In some cases, sellers may be willing to finance the purchase themselves, bypassing traditional lenders.
- Personal Loan: If the gap isn’t too wide, a personal loan could cover the difference, though this comes with higher interest rates.
- Wait it Out: If you’re not in a rush, waiting might be an option. Markets can shift, potentially leading to a higher appraisal in the future.
What Not to Do
- Don’t Make Rash Decisions: Acting out of frustration or desperation can lead to poor financial choices.
- Don’t Overextend Yourself: Avoid stretching your finances too thin to cover the gap; this could lead to financial strain down the line.
Other Things to Keep in Mind
At Effortless Mortgage, we advise our clients to always get pre-qualified for a mortgage before putting in an offer to purchase a home. This helps with understanding how much you can qualify for without suffering financially.
We also advise you to ALWAYS add a financing clause (i.e. 5 – 10 business days) as a condition of your offer to give you enough time to order an appraisal and firm up your financing.
If you have that 10 days, that’s enough time for your mortgage advisor to order an appraisal. If the value comes in lower than expected, the lender cannot cover the shortfall and you don’t want to proceed, then you can back out of the offer without losing your deposit or risk getting sued. This is a situation where the Home Appraisal is Lower Than the Offer.
Let’s talk about bidding wars…
During prime selling season, bidding wars erupt left and right. And the downside to winning one is the reality of getting financed at that final price.
Remember, the bank is going to lend only the appraised fair market value, and not the higher price you might think it’s worth. So you’ll be left paying the difference yourself. But don’t worry, you can still secure your dream home after a low home appraisal by employing the right strategies.
5 Strategies to Secure Your Dream House When the Home Appraisal Comes in Lower Than Your Purchase Price Offer
In Conclusion:
A low home appraisal can be a stumbling block, but it doesn’t have to be the end of your home-buying journey. When the Home Appraisal is Lower Than the Offer, by understanding the appraisal process, challenging the appraisal, negotiating with the seller, considering different financing options, and exploring other avenues, you can still secure your dream home.
Remember to stay calm, be informed, and explore all your options before making a decision.
Securing a home is a significant milestone, and navigating the complexities of appraisals is just one part of the journey. With these strategies in hand, you’re better equipped to handle the situation and move forward toward your goal. Happy house hunting!
