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3 Solutions When A Home Doesn’t Appraise

Performance Property Real Estate Question

Q: We are buying a home. The appraisal came in lower than the price we agreed to pay. What can we do? Doris, Caldwell, NJ

A: An appraisal contingency in a purchase contract provides protection for buyers. With this contingency in place, buyers can typically renegotiate the price or terminate the contract without penalty if the appraisal comes in lower than the purchase price. However, buyers should be cautious about waiving appraisal contingencies, because this could leave them obligated to cover any shortfall from a low appraisal or risk losing their earnest money deposit in a real estate transaction. Here are 3 solutions when a home appraises for less than the sales contract price to facilitate the sale:

  1. Challenge the appraisal. The buyer can request a second appraisal or a review of the original appraisal from their lender, especially if there were factual errors in the initial appraisal report. The buyer can also try to wait for another similar or comparable home to sell at a higher price and then request a new appraisal to try to yield a higher appraised value.
  2. Renegotiate the sales price based on the appraisal results. In this scenario, the seller may agree to lower the price to match the appraised value, allowing the deal to proceed without requiring additional funds from the buyer.
  3. Both parties could agree to split the difference between the appraised value and the contract price. For example, if there’s a $30,000 gap between the purchase price and appraised value, each party could agree to cover $15,000 with the seller agreeing to reduce the price $15,000 and the buyer agreeing to bring $15,000 in additional funds to closing to cover the gap between the appraised value and the contract price.

Thanks for your question, Doris.

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