We feel bad when our sellers receive low appraisals because it can be a painful outcome for the seller and buyer. But all hope is not lost - there are things you can do to try and keep your sale moving forward. Read on to find out what they are!Appraisal rules are set up in a way that is meant to ensure the seller has no influence over the outcome. The bank underwriter wants to keep appraisals independent to make sure they're not overpaying for the property their funding a loan on.
That's why pleading with the bank is not always possible if your appraisal is low. You can, however, ask the buyer or buyer's agent to ask the bank about appraisal appeal rules. If there isn't an appraisal appeal, here's what you can expect.
If your buyer puts down less than 20% as a downpayment, these are the possible outcomes:
- The buyer backs out, either because of cold feet or because they can't get a loan. If the buyer puts down 5% or less, this outcome is particularly common.
- The buyer asks the seller to reduce the purchase price to the appraised value or to another value that's less than the current sale price but more than the appraised price. This outcome is very common.
If the seller refuses, the deal typically falls apart. That means the seller must relist and take their chances that the next buyer will offer the same price and that the new buyer's appraisal will come in at value.
This approach can be very risky. More often than not, the second appraisal with the second buyer is not much better than the first and getting that second buyer and appraisal can take weeks or even months.
- The buyer asks the seller for an extension of time and works on a new loan with a new appraisal. We almost never see this outcome. Typically buyers have cold feet, have already spent time and money on the first loan and are not interested in going through the entire loan process again.
If your buyer put down more than 20% as a downpayment:
In this case, a low appraisal is much less problematic - and may not be problematic at all because the buyer is likely still going to be able to proceed with their loan and to close escrow. The only real problem you may face is if your buyer gets cold feet. That issue can usually be easily overcome with a minor reduction in final sales price.
Questions about low appraisals? Ask us!