There are many reasons to get your home appraised. One reason is to assess the amount of property taxes you are required to pay. If you are going through a divorce, you may also need to get your home appraised. In cases like these, you may want your home to be appraised at a low value because it would save you money.
However, if you are planning to sell your home, you want your home’s appraised value to be as high as possible so you can get a better price for it. In most cases, the home buyer’s bank is going to conduct a home appraisal because the results of the appraisal will help the bank determine if they are going to loan the money to the buyer to purchase the home. Unfortunately, this appraisal value often comes in much lower than the seller expects. So what should the seller do? If your home appraises for a lot less than what you thought it would, here are some options that you can use.
Drop the Sale Price of the Home
The most common thing to do if your home appraises for less than you expected is to drop the price. Many appraisals occur after a buyer agrees to purchase the home pending certain procedures, including the appraisal and the home inspection. But if you have a higher price on your home than the actual appraised value, it will be nearly impossible to get the price you want for it. If you drop the sale price, you can often negotiate with the buyer for other things, such as asking them to pay the closing costs or asking them to make some of the repairs that need to be done before the home sells. It is often better to give a little on the price rather than to cancel the transaction (in which case the buyer gets back any escrow money and you need to relist the home).
Cancel the Transaction
Many home sellers make a rash decision to cancel the sale of the home when their appraisal comes in much lower than they expected. This is a viable option, but it may not be the best decision for the seller who really wants to sell their home. Once the agreement is canceled, the seller essentially has to go back to square one to find another buyer who is willing to buy without a mortgage contingency (rare) or to hope that the appraisal associated with the next offer is closer to their selling price. In many cases, the buyer simply takes their home off the market for awhile.
Offer a Second Mortgage for the Difference
If the seller really wants to sell the home and the buyer is motivated to purchase it, the two parties may be able to work out an agreement in which the buyer pays the seller the difference in payments or as a lump sum at a later date, with or without interest. This is obviously not a viable alternative for the seller who is going to lose sleep over the buyer's credit, and you should seek legal counsel concerning potential ways to get collateral.
Ask for a Second Appraisal
There is nothing wrong with getting a second opinion about the value of your home. Appraisers do make mistakes from time to time. According to the terms of the buyer’s offer, you may be able to ask the buyer to pay for the second appraisal. Alternatively, you may offer to pay for it yourself if the buyer agrees not to cancel the transaction on the basis of the first appraisal. Find a qualified, independent appraiser with a good reputation in your local area to make sure your appraisal is done correctly.
These are just a few things to keep in mind if you are selling your home. It is often a good idea to get an appraisal before listing your home so you have an idea of its current market value and you won’t be in for too many surprises once you find a buyer for it.