Appraised Value and Sales Price are Different

 In Common Questions

What are your options if the appraised value of the house you want to buy is different than the price you agreed to pay?  

Here’s what you need to know.

If Appraised Value and Sales Price are Different

If the appraised value turns out to be higher than the contract offer price, you, as the buyer, don’t need to do anything at all.  We never tell the listing agent or the seller if the appraised value is higher, so they will never know unless you tell them.  You get to buy the house for less than the appraised value, which is a really good thing for the buyer. Not so good of a thing for the seller, who could have probably sold the house for more.

However, with so few houses on the market these days and bidding wars being fairly common, it’s unusual for the appraised value to be higher than the sales price.  It is relatively common for the appraised value to be lower than the sales price, though.

If there’s nothing in the contract stating whether you have agreed to pay more than the appraised value, there are three options for how to handle things.

#1

The first option is for the buyer to agree to purchase the house for the sales price, even though the appraised value is lower.  The lender will require you to bring the difference to the closing in cash, however.   As an example, if your contract says you will buy the house for $500,000, but the appraised value is only $490,000, you would have to pay the $10,000 difference between the contract price and the appraised value yourself, without financing it.  A lender will not finance a house for more than the appraised value, so the buyer has to provide the difference themselves, but only if they agree to do so.  If you have not agreed to pay the difference, you can get out of the contract and get your earnest money back.  There are specific deadlines you have to meet, but it is usually not a problem.

#2

The second option is to just walk away from the deal and get your earnest money back.  This is usually only done when the buyer does not have the money to pay the difference between the contract price and the appraised value.  In a real estate market that is experiencing a shortage of available houses, like we have now, most buyers will not want to lose a house over a small difference, especially when they know the house will probably be worth more in the near future.  When there isn’t a shortage of houses for sale, this option is a little more common, although the next option is the typical solution when the buyer just doesn’t have the money to make up the difference.  

#3

The third option is for the buyer and seller to agree to the transaction at a price that is somewhere between the contract price and the appraised value.  This is usually a good option for the buyer because they still get to buy the house, although at a slightly higher price.  It’s also often a good deal for the seller because if they don’t agree to lower the price, the next buyer will run into the same problem and they will have to address the shortage then.  

Our Advice

The best way to deal with things when the appraised value is lower than the contract price is to let your real estate agent handle the negotiations for you.  We, as the lender, can advise you regarding the lending rules, but we are not allowed to advise you regarding the sales price.

If you run into a situation like this, we will do everything we can to make sure you understand your options and how much each of those options will cost you.  The important thing is to not panic if the appraised value is different than the contract price.  It happens quite often, and we deal with it all the time.

If you want to see how easy it is to get a mortgage – either for a purchase or refinance transaction – contact us and we’ll be happy to show you how easy it is.

Recent Posts

Start typing and press Enter to search

Four Common Mortgage Misconceptions