Seller options when the appraisal comes in low
I have a sales contract but the buyer’s appraisal came back for $10,000 less than our agreed upon purchase price. After the buyer’s inspection, I agreed to credit $5,000 for an older roof. And because of the low appraisal, I now just offered to reduce the price another $5,000.
If the buyer does not accept can I cancel escrow?
Dear Fed Up,
You are under no obligation to reduce the purchase price because the appraisal came in low. Most real estate contracts are written with the contingency that the property appraise for the selling price (or higher). With this contingency in place, the buyer may cancel escrow and have his deposit refunded if the appraisal comes in low; however the seller does not have this option.
Many Realtors®, sellers and home owners just hoping to refinance have recently experienced appraisal problems. Unfortunately due to a somewhat recent revamp of how appraisals are ordered, fees payable to appraisers have often been cut. Many experienced appraisers refuse to work for the reduced fees. Sometimes an appraiser may even be from a different county than the home he is evaluating.
When an appraisal comes in low, the seller’s Realtor® should closely review the information regarding the comparables used. The appraiser compared your home to what he determined were similar properties and then made adjustments based on his observation.
Appraisers don’t generally view the interiors of the comparables they are using. Adjustments are made based on the appraiser’s assumption of condition, upgrades, floor plan, etc. Likely your real estate agent is more familiar with these comparables and may often find mistakes in the appraisal. In this instance the appraisal should be corrected, value increased and your appraisal issue resolved.
If your Realtor® is not successful in getting the appraisal increased, you need to discuss your next course of action with your agent. But be sure to discuss: How long was your home on the market? Do you have any back up offers? Will a new buyer also expect a credit for the older roof? Will you sell your home for more money (or the same amount or less next time)? Will the appraisal again come in low?