Mortgage Advice

The Home Appraisal: What Buyers and Sellers Should Expect

August 25, 2016

This is a guest blog post from Tom Lipinski of the Tom Lipinski Team at Keller Williams Lakeside Realty.

After searching all summer for the perfect home, you found “the one” and made an offer that was accepted. The inspection went well, so what comes next? The appraisal. Depending on which side of the transaction you’re on, buyer or seller, the appraisal can be an anxious time to say the least.

The Buyer
As a buyer, you want the home to appraise for the agreed purchase price so that you can secure a mortgage. The lender requires an appraisal because they want to determine the actual value of the home, independent of its listing or sales price, to compare against what you’ve agreed to pay. This is to ensure the home is actually worth the money they will be lending you.

So, what happens if the appraisal comes in lower than the agreed upon purchase price? As a buyer, you may have the option to walk away from the sale if the seller won’t agree to reduce the sale price to the appraised value. Or, you could pay the difference between the purchase price and appraised value in cash at closing. Meeting in the middle, or curing the deficiency, may make sense if you plan on staying in the home for an extended period of time, or if the home fits your needs in all the right ways. Only you can make that decision. Having an expert buyer’s agent in your corner will surely help in your decision-making. Having abundant cash on hand helps, too.

The Seller
As a seller, you have negotiated a sales price with the buyer and want what you have bargained for when the sale closes. If the property doesn’t appraise at the sales price agreed upon in the purchase agreement, you are likely back to negotiating. When this happens, there are three possible scenarios:

  1. The seller agrees to sell at the appraised amount.
  2. The buyer pays the difference between the purchase price and appraised price in cash.
  3. A combination of the first two scenarios. The parties may agree to meet in the middle, meaning the seller will reduce the sales price and the buyer will pay extra cash to make up the difference.

Failing to come to an agreement could mean going back on the market in search of a new buyer, hopefully one with cash. As the seller, why would you want to renegotiate your sale? Well, it may be the only way to sell. If you go back on the market, the same situation could occur again with a new buyer when the next appraisal is completed. Even more, if the buyer was securing an FHA loan, the appraisal will remain active for 120 days. This means another FHA sale will automatically use the prior FHA appraisal.

If an appraisal comes in lower than you expected, your agent can look for flaws in the appraisal and can request a reconsideration of value. There are no guarantees that the appraisal will be reviewed (unless it’s a VA loan, which has a review process), and a review doesn’t necessarily mean the value will be adjusted.

Having an expert real estate agent in your corner to help you navigate through this stressful time is a must, and you should discuss the possibility of a low appraisal at the time you list or prepare to make an offer on a house.

Do you have a question for Tom? Connect with him on Facebook or leave a comment below!

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Real Estate Agent Tom Lipinski knows a thing or two about buying and selling homes—he’s been helping clients from West Bloomfield to Birmingham to his current Shelby Township location do exactly that for over 20 years. Over time, Tom has built a reputation for excellent client service and results through hard work, integrity, deep knowledge of the Michigan residential real estate market, and a genuine desire to help others. Through up markets and down, Tom’s clients have always been able to count on his commitment to them, and that will never change.