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What Happens If Your Appraisal Falls Short?

With recent home sale prices trending upwards, many sellers want to maximize the profit of selling their property. In a seller’s market, it’s often much easier to get more money for a property. Still, it’s easy to overprice a home and run into financing problems. Read on to find out “What happens if Your Appraisal Falls Short?”

One typical misstep sellers run into is overestimating the value of their homes. This can be particularly problematic if they sell their home without a professional’s help. One of the most important parts of selling a home is the comparative market analysis. This system helps real estate agents determine the value of a property so they can create a fair listing price. The CMA removes the guesswork. However, even with proper preparation, home appraisals might come back lower than anticipated.

What happens if you find yourself in this situation? If your appraisal comes back lower than your asking price, you could have some problems.

What Causes a Low Appraisal?

There are a few things that could lower the value of your home. Several factors affecting your property value could be changed, but others are unavoidable. Common reasons for a short appraisal include:

Multiple foreclosures or short sales in your neighborhood

Since property values are based on the sales prices of similar properties nearby, multiple foreclosures and short sales can affect the values of other homes in the neighborhood.

Inaccurate original valuation

If the market analysis on your home isn’t correct, you may have an inaccurate (higher or lower) number as your starting point. When an appraiser reviews your property, their numbers could be different than your original valuation.

Damage to the property

Some things that can affect a property value include:

  • Damaged foundations
  • Damaged roof
  • Old HVAC system
  • Termite damage
  • Electrical issues
  • Plumbing issues
  • Unauthorized additions

A real estate agent (or a seller) may not factor in unseen damages when estimating the home’s value.

Overpricing by seller

Naturally, people tend to put more value on the things they love. But, when pricing your home, you need to approach it from a neutral zone. Sellers who overprice their homes will see a lower appraisal.

Changing markets

The housing market shifts regularly. Local markets (like new business, new zoning laws, crime rates, etc.) can affect property values. The market may have shifted if it’s been several months or longer since your last appraisal.

Artificially inflated prices

One less common reason is artificially inflated prices. Occasionally, deceptive real estate agents will inflate the price of a home to entice sellers to list with them. It’s unethical, and it can cost you a lot of money. If you opt to work with a realtor, have them explain how they determined your property value.

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What do I do if my appraisal comes in low?

Fannie Mae reports that FHA appraisals come in low only 8% of the time. That’s good news for the average home seller. If you’re one of the unlucky ones, you’re likely wondering what your sale looks like from here.

When a home appraisal comes in below the offer price, buyers won’t be able to get the total amount from their lender. For example, if a buyer offers $400,000 for your house, but the appraiser says the value of your house is $380,000, the buyer must come up with an additional $20,000 to pay for the home.

If your appraisal comes in lower than you anticipated, you have a few options:

Challenge the appraisal:  If you disagree with the appraisal, you can ask for a second opinion. You’ll need to provide evidence to support why you think the appraised value should be higher (like comparable sales), but it is possible.

Lower your asking price: If you need to sell quickly, lowering your asking price to match the appraised value (or slightly higher) can make it much easier for the buyer to move forward.

Ask the buyer to cover the difference: If you don’t want to lower your asking price, you can ask the seller to make up the difference. They would need to come up with cash or take out a second loan to cover the additional amount. This works best with multiple offers, so you have backup buyers if your current bid can’t, or won’t, pay the difference.

Plan ahead

You may be able to protect yourself against lower appraisals with an appraisal gap guarantee. The seller would agree to pay any difference between the offer price and the appraisal if the appraisal.

If you need to sell your home quickly and your buyer won’t cover the difference between the low appraisal and sales price, you may consider selling your house for cash. Cash buyers, like Brick, can help you save time and money by skipping the financing and listing portions of selling your home.

Reach out today for a fast cash offer on your property.

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