What Happens If My Property Doesn’t Appraise?

As a real estate agent you may have problems with your property not appraising, especially if it is a hot market. Prices may be rising, but appraisers may only go on previous (lower) sales. So what does this mean for your buyers? Let’s take a look at the real estate math behind your appraisal options.

Real Estate Math Example

For this discussion, let’s say that your buyer, Joe White, is enters into a contract to buy a property for $100,000. He is planning to do a 20% down conventional loan, meaning he needs a $20,000 downpayment and he will borrow $80,000 from the bank. The bank will loan Joe up-to 80% of the Loan-To-Value (LTV) of the property.

Now what happens if your real estate appraisal comes in at $90,000 instead?

Joe has a couple options:

1) Buy the property anyways and pay a higher downpayment. Since the property only appraised at $90,000, Joe can only borrow a maximum of $72,000 from the bank. That means Joe needs to put down $28,000 (instead of $20,000) as the downpayment for the house. The purchase price is still $100,000.

2) Agree to split the cost with the seller. You could negotiate with the seller to ask them to reduce the price by some (or all) of the difference. Let’s say the seller agrees to lower the price to $95,000. The bank will still only loan up to $72,000, but Joe only needs to put down $23,000 as the downpayment for the house.

3) If Joe has an appraisal contingency as part of his contract, he could choose not to buy the property because it did not appraise.

The appraisal should be reviewed carefully to make sure the appraiser took an accurate assessment of the property. Perhaps you (or the seller) knows more information about the neighborhood or upcoming closings that the appraiser isn’t aware of. This new information for the appraiser could help to adjust the price higher.

Interested in more real estate math problems?

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