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What to Do When the Appraisal Comes in Below the Sale Price

Law Offices of Peter V Lathouris LLC  Feb. 12, 2024

When you're near the end of a real estate transaction, an appraisal that isn't what you expected or hoped for can be disappointing or even frustrating. Whether you're a first-time homebuyer, an experienced investor, or venturing into the world of property selling, understanding the appraisal process is crucial in buying or selling your property. We're here to help you understand what to do when the appraisal comes in below the sale price so that you're equipped with the knowledge and strategies to keep your sale afloat and your peace of mind intact. 

Understanding Appraisals

An appraisal is a professional evaluation of a property's value. This process, often ordered by the lender, takes into account various factors such as the property's location, size, condition, and comparable sales in the area. It helps ensure that the value of the property is sufficient to support the loan amount.  

The appraiser will visit the property, assess its condition, and compare it to similar properties that have recently sold in the area. They'll then provide a detailed report of their findings and the appraised value of the property. Understanding how appraisals work can help you navigate the situation when the appraisal comes in below the sale price.  

The Impact of a Low Appraisal

A low appraisal can create challenges for both buyers and sellers. If the appraisal comes in below the sale price, it implies that the lender may not be willing to provide a loan for the full amount.  

For buyers, this could mean that they need to come up with additional funds to cover the difference or renegotiate the sale price with the seller. 

For sellers, a low appraisal can result in a delayed or canceled sale. Buyers might be reluctant or unable to proceed with the purchase if the appraised value is significantly lower than the agreed-upon sale price. This can lead to negotiations between the buyer and seller to find a resolution that is acceptable to both parties.  

It's important to remember that a low appraisal doesn't necessarily mean that the property is overpriced. Appraisals are subjective and can vary based on the appraiser's methodology and the current market conditions. Addressing the situation effectively will help you ensure a successful transaction. 

Options When Facing a Low Appraisal 

When you're confronted with a low appraisal, there are several options to consider, including renegotiating, challenging, accepting, or leaving the deal. 

Renegotiating the Sale Price

If the appraisal value is lower than the expected sale price, one avenue is renegotiation. Both buyer and seller can come together to discuss a price adjustment that reflects the appraised value. This option necessitates diplomacy and compromise, as the seller must be willing to accept a lower price and the buyer must decide if the deal remains an attractive investment at the new price point. 

Challenging the Appraisal

Another option is to dispute the appraisal if you believe it is inaccurate or does not reflect the property's true market value. This involves a detailed examination of the appraisal report, noting any discrepancies or overlooked features that could affect the value. You will need to gather evidence, such as information on comparable properties or recent improvements, to support a request for reconsideration of the appraised value. 

Covering the Difference 

Alternatively, buyers might consider covering the shortfall between the appraisal value and the sale price themselves. This option requires careful financial consideration, as it involves additional out-of-pocket expenses. Those considering this option should assess their liquidity and the long-term impact on their finances before proceeding. 

Ordering a Second Appraisal 

Ordering a second appraisal is an option if you suspect the first appraisal was flawed due to error or oversight. A different appraiser may offer a new perspective, potentially resulting in a valuation that's closer to the agreed-upon sale price. This does incur additional costs and is not always guaranteed to produce a different outcome. 

Walking Away From the Deal 

Finally, when all other options are exhausted or prove unviable, walking away from the deal may be the most prudent decision. While it can be disappointing, it protects all parties from entering into an agreement that's not financially sound. Canceling the sale might be necessary to avoid over-investment in a property that doesn't appraise for the expected amount. 

Tips for Dealing With a Low Appraisal

When faced with a low appraisal, it's crucial to approach the situation with a level head and a strategic plan. Here's how you can handle it: 

  • Communicate openly with all parties involved: Keep a clear and respectful dialogue with the buyer, seller, and lender. 

  • Consult a real estate attorney: For complex negotiations or legal concerns, professional guidance can be invaluable in protecting your interests. 

  • Consider a second appraisal: If you doubt the accuracy of the appraisal, you may want to obtain a second opinion from another professional. 

  • Explore all financing options: If the current lender's terms are unfeasible, look into different lenders or loan programs. 

  • Prepare for compromises: Finding middle ground might require flexibility and compromise from both buyers and sellers. 

By following these steps, you can better navigate the choppy waters of a low property appraisal and work towards a satisfactory resolution for all parties involved. 

Explore Your Options After an Appraisal

When you're faced with a lower-than-expected property appraisal, remember you're not alone. Here at the Law Offices of Peter V Lathouris LLC, we're ready to stand beside you, guiding you through every step of this process. With our firm's extensive experience in real estate law, we're more than capable of tackling these challenges and helping you find the optimal resolution. We pride ourselves on thorough preparation, teamwork, and a competitive spirit, always striving for success for our clients.  

So, if your property's appraisal doesn't quite hit the mark, don't hesitate to reach out to us. We're here to help, whether you're in Stamford, Darien, Greenwich, Norwalk, Danbury, Westport, or anywhere else in Fairfield County and New Haven County. Let's figure out this situation together. Reach out to our firm today for a consultation.