If the buyers are relying on financing from a bank to purchase a
home, a low appraisal can scuttle a deal. Banks require appraisals to verify
that a home's sale price is supported by its market value.
What can
a buyer and seller do if a home does not appraise?
a) Buyer can make up the difference in
cash. The
lender cares about the appraisal only to the extent it affects the
loan-to-value ratio. A low appraisal does not mean the lender won't lend. It
means the lender will make a loan limited to a specified percentage of the
appraised value.
b) Dispute
the appraisal. Either
the seller or the buyer can pay for a second appraisal. If the parties
find out that the appraiser is not familiar with the local market, or an
appraiser made mistakes they have the right to contact the lender to demand a
second appraisal.
c) Appraisal review. The buyer or seller can ask their agent to put together a list
of recent comparable sales that justify the agreed-to sales price including the
pending sales and submit that list to the underwriter and ask for a review of
the appraisal.
d) The seller can offer to carry a second
mortgage for the difference. If the seller wants the deal to go through but the buyer
cannot come up with the difference in cash, the seller may agree to carry a
second mortgage.
e) Cancel the transaction. If checked, the purchase contract
gives the buyer the option of having an appraisal contingency that allows the
buyer to cancel the contract and requires the seller to release the buyer's
earnest money deposit if the appraisal comes in low.
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