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  • Milad Taghehchian, CPA, CFP(R)

Low Appraisal When Purchasing a Home

Purchasing a home can be a very stressful experience. Long search times, indecisiveness, and an inability to find a home everyone in the family will love are some of the most common issues people run into when searching for a home. Finally finding a home you’re absolutely happy with can be a big relief – until the appraisal value turns out to be much lower than your offer. It’s a common situation in rising housing markets. A rise in demand forces homebuyers to bid against each other, forcing home prices to rise well above their previous values. In many cases, people are happy to pay a premium for a home, seeing it as a serious investment with a long time horizon. But the appraisal value can often fall short of the negotiated price of the home, creating many issues.

Most lenders base mortgages as a percentage of the appraised value of the home. For example, if your home is appraised at $300,000, a lender might only let you borrow $240,000, or 80% of this appraised value. This can be a problem when the appraised value is much lower than your offer, as you’ll have to put more cash down because lenders are covering less of the cost.

​Solutions Contracts usually have an appraisal contingency clause in order to protect you, the buyer. If the actual appraisal does not match the pre-determined amount, the contract becomes null and void. Use this as a way to negotiate a new price – or at least get your money back! You could also appeal the valuation and ask for a second appraisal – but this can quickly become expensive. A cooperative seller might offer to cover the costs of the appeal, hoping to close the negotiation for good. In order to receive a fair appraisal, you must make sure to provide comparable listings and recent sales in the area that match your offer. Ultimately, this could be a sign that you’re overpaying for your home and should perhaps re-evaluate how much a new home is truly worth. By overpaying on a home, you could be inviting years of stress on high mortgage payments and preventing yourself from enjoying financial freedom in the later years of your life.

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