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.