Let’s say you found your dream home for sale in Davenport, FL. It has everything you’ve been looking for. You put an offer on the house, escrow opened, and the inspection shows the home is in excellent condition. However, when you receive the appraisal results, the value is some number less than the agreed-upon purchase price. What should you do?
It’s not often that a home gets appraised less than the purchase price. But it does happen. Here’s why it happens and what you can do if you find yourself in this situation.
Lower than the purchase price
Lenders base their loan amount on either the appraisal value or the purchase price, whichever is lower. The price is usually renegotiated if the valuation is lower than the purchase price if the contract has that contingency. Typically, the sellers will settle for a lower price that is closer to the appraised value. If the seller is unwilling to budge on their price, the buyer can decide to pay the agreed amount or walk away.
In recent years, appraisers have been asked to do some "inspection" type services for the lender (a story for another day). If the appraisal shows a clogged sink or some other glaring issue with the house, most sellers will address the problem so that escrow can move forward. Should the appraisal show a significant difference between the valuation of the house and the purchase price, the entire process of buying the home will be put on hold until the price can be renegotiated between the seller and the buyer.
Resolving a low valuation
A low valuation isn’t resolved quickly. If the sellers are unwilling to renegotiate the purchase price, it will disrupt the flow of the home-buying process. This can add an unnecessary amount of stress to both parties involved.
Sellers can attempt to appeal to the appraisal, but the process is long and arduous. The chances of appealing an appraisal so that the appraiser changes their original valuation is rare.
Agents have a difficult time trying to resolve low valuations. All they can really do is ask you, their client, the right questions to help you determine how much you are willing to pay over the appraisal. And there are some instances when it’s okay for you, the buyer, to pay more than the assessment.
When Is It OK to Pay More Than the Appraisal ?
While appraisers are licensed professionals, it’s good to remember that an appraisal estimates a home’s value. To prepare this report, appraisers gather facts about the house and give their personal opinion. You could likely have two appraisers appraise the same property, and they both give you different valuations. Here are a few questions to ask yourself to help you determine if you overpay the appraisal’s valuation.
Do you love the location?
Consider the location of the house. If you love it and couldn’t be happier, then paying over the appraisal is okay. You can make whatever changes to the home that you want, but you can’t move the house somewhere else. Keep the location of the house in mind as you consider weighing out the price difference.
What is your opinion about the worth of the house?
Maybe you’ve always dreamed of getting a vacation home, and the house you’re considering is the one. Maybe the house has a pool and is located next to a golf course, and you couldn’t be happier. Since you’re the one buying the home, your opinion matters the most. Some homes have a greater value than what any appraiser can estimate. If you find some aspects of the home as incredible value, you will see that more than a third party will.
Will overpaying matter in 15 years?
If you plan to buy the home and live there for 15 years or more, will paying over the appraisal matter in the end? You will want to consider how much the difference is between the appraisal and the purchase price. If the purchase price is between one and five percent more than the valuation, you likely won’t be regretting the decision to buy. The appreciation of the home and general inflation will fluctuate in the time you are in the home, too.
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