What happens when appraisal is lower?

Question

I am in the process of closing on a house, closing date is 2 weeks from now. However, the appraisal the lender ordered came back $17k lower than the asking price. At this point what is the most logic next step? I don’t want to pay $17k more than the appraisal. This is not a house, is this still a point where I can negotiate price with the seller party? Do I request the seller to lower the price by $17k? Or that they lay closing cost?

I was thinking if they pay for closing cost I would still get stuck with an overpriced house.

Any feedback on what to do when they appraisal is significant lower than agreed price?

Thank for you for all the feedback

I was thinking if they pay for closing cost I would still get stuck with an overpriced house.

Any feedback on what to do when they appraisal is significant lower than agreed price?

Thank for you for all the feedback

Jonathan Greene · Answer

Your contract should have an appraisal contingency and if it has not been altered, the parties can renegotiate based on the appraisal. But when you are the buyer and the appraisal comes in low, you are really in the driver's seat. The seller knows now that no matter what happens if you leave the deal, the appraisal has been set 17k below the agreed-upon price. So they would either have to find a cash buyer or someone willing to waive appraisal which would make no sense with the current appraisal. If you really want the house, the options are as follows:

- see if you can split the difference. You pay 8.5k in cash, they reduce the price 8.5k.

- renegotiate down 17k with the reasons I stated above. Every new buyer who is buying with a mortgage is likely to get the same appraisal.

- cancel the deal and walk away and get your deposit back, but first, confirm the language in the contract.

As a buyer, you don't really want to challenge the appraisal because it's in your best financial interests now that it appraises low. You would like to get that 17k in a future appraisal. You hold the cards, it depends on how much you want the house, but it is definitely time for you to negotiate from a fair position of power.

Dan LaFontaine · Answer

Congrats @Alvaro Rodriguez.  Getting the price down is certainly always the preference as you end up with a better deal.  Sometime a slightly lower appraisal is not bad as it gives you yet another lever, an indisputable and objective one, to pull at the last minute when you otherwise would have already hit the seller's bottom.  That being said, never be afraid to dispute an appraisal. Far too many appraisers rush things or play it overly safe to protect themselves and the lender, which is understandable.  As long as you've done your homework and  are armed with additional highly relevant data for them to consider (and to manage their risk with), there's usually a good chance you'll squeeze a little more out.

Alvaro Rodriguez · Answer

@Jonathan Greene thank you so much for the feedback. Managed to negotiate down the $17k, this will help my cashflow a lot and hope to move onto the next rental after I close this one.

Thanks again

Kenneth Garrett · Answer

@Alvaro Rodriguez

You can challenge the appraisal (talk to your lender) with comps that are appropriate that they didn’t use.  I was successful at getting an appraisal up by 30K.  You can request a second appraisal from the lender, but ask first about what happens when there is a difference.  I’ve had some lenders say we’ll take the average of the two.  Certainly you can ask the seller to renegotiate the price or closing cost; they might help you out.  So you weren’t denied the loan because of the appraisal you will need to bring money to the table.  I’ve had to bring 10K to a closing due to an appraiser.  You can always walk away, but I don’t think that’s the proper thing to do. See if you can work it out.

What happens when appraisal is lower?

Most Popular Reply