Appraisal Amount Is Lower Than The Agreed-to Purchase Price

Posted Under: Home Buying in Orlando, Home Selling in Orlando, Financing in Orlando  |  April 11, 2011 9:56 AM  

This is a common question in today’s changing market. The answer depends on the contingencies that were included in your purchase contract. Usually the standard purchase contract has an appraisal contingency that is subject to the property appraising at the agreed-to contract sale price or higher. Know that the purchase contract is referring to a new appraisal and not one that had been performed previously. 

 

A licensed appraiser is performing the act of estimating the value of real estate and may take into account the quality of the property, values of other properties in the same area, market conditions, square footage of the home, lot square footage and other amenities as well as a potential sales price.

 

Make sure to look closely to the comparable properties that were used on the appraisal because sometimes the appraiser may be unfamiliar with the area and may have selected comparable's that are incorrect or in a different school district or tax district and may have a real impact on the value of the subject property.

Due to recent changes in the appraisal process, appraisers have absolutely no contact with the lender. This is in order to avoid any undue influence on the valuation. We do know that the appraisal is an opinion of a highly educated person, yet one who is only human. There have been cases in which the parties involved have challenged the appraisal by offering the lender or appraiser additional sale comparable's that may justify a higher price or correct an oversight in the original appraisal report.

 

If the appraisal amount is lower than the agreed-to purchase price, it is clear that the buyers may walk away from the property without penalty and retain all of their earnest monies, as the bank will lend against the lower of the purchase price or the appraised value. However, with this situation becoming more prevalent nowadays, the buyers may want to consider some options such as:

 

• Buyer to pay the difference in cash.
• Seller may lower the purchase price to the appraised value.
• Buyer and seller split the amount difference equally.
• Pay for a new appraisal.
• Try a different lender.

If a buyer is so lucky as to pay all cash for a property, they would be wise to also include the appraisal contingency even though it would not be a requirement. The deciding factor typical will be the motivation of the buyers and sellers as well as each of their resources.

 

Brian Teach