What If The Appraisal Comes In Low?

This is still an all too common thing.  Most homes require bank financing. All lenders will require an appraisal on your home to verify the collateral of the home being sold.  You've most likely passed inspection so the final hurdle prior to closing will be the appraisal.  What if the appraisal comes in less than the agreed upon sales price?

Lenders always base their loan on the LOWER of the sales price or appraised value. So, unless otherwise agreed upon between the buyer and seller that appraised value becomes your new sales price.

Your choices

  1. Take the appraised value as the new sales price so you can close. 
  2. Negotiate with the buyer to meet somewhere in the middle between the appraised value and the previously agreed upon price of your home. This is the most common solution. HOWEVER, the buyer will need to have the funds available AND want to do this. In a situation where the buyer isn't putting much down like FHA the odds are they do not have the additional funds to meet you in the middle somewhere.
  3. Stand firm on your agreed upon price. This does not work very often. In your mind as a seller you're thinking the sales price is what they agreed to. However, in the buyer's mind they have a professional who says the home isn't worth that. Why would anyone pay more for something than it's worth?  A valid question. So, if you attempt to hold the buyer to your previously agreed upon price they may walk then you're back to square one finding a new buyer.

The bottom line

If the appraisal comes in low that becomes the new price unless both parties agree to modify the sales agreement. So, there would need to be an "Addendum" typed up where both buyer and seller agree to the new price.  It's a poker game and depends how bad you want to sell and risk losing the buyer to negotiate them back up to or near your previously agreed upon price.