Negotiating a home sales price is nerve-wracking, and once you have a set price, you're not necessarily clear for closing. Mortgage companies require a professional appraisal on the house. When the appraised value comes in lower than the sales price, it can throw a major kink in your home-buying plans. Banks only approve loans for sales prices equal to or less than the appraised home value, so a low appraisal means you won't qualify for the agreed-upon sales price. A few options exist to help you move forward with the purchase even with a low appraisal.
Ask your real estate agent to provide you with a list of nearby comparable home sales, called comps. Appraisers use the final sales price of comps when determining the value of the home you're trying to buy. They'll pull their own comps, but ask them to refer to the list to see which homes are marked as foreclosures and short sales. These can reduce the value of nearby homes if considered with the same weight as resales.
Request that the homeowner create a list of improvements made to the home that might affect the appraisal report. Appraisers can increase the value of the home based on major improvements such as new appliances or upgraded flooring that might not have been obvious.
Challenge the appraisal or request a new one. You must have adequate reason for this, not just the fact that you're not happy with the value. Review a copy of the appraisal and check for factual errors, such as correct square footage, and ask your real estate agent to review the comps. Some comps might not be adequate, and you can suggest replacement comps. Request a local appraiser who is familiar with the housing market in your area. If he knows homes are selling fast and bidding wars occur on many of them, he might increase the appraised value of your home slightly.
Negotiate a lower sales price with the seller. Not all sellers can come down on the price because of their own mortgage payoff requirements, but many have at least a small amount of wiggle room. If they don't want the deal to fall through, they might agree to lower the sales price equal to the appraised value. Some appraisals, such as those for FHA or VA loans, attach to the home for six months or more, which means the sellers can't get more for the house than the current appraised value from any buyer using those loan types.
Pay more money at closing. You already must pay your down payment and a portion of closing costs, but to keep the sale moving forward when the seller can't come down on the sales price, pay the difference between the sales price and the appraised value at closing. For example, if the sales price is $200,000 with an appraised value of $190,000, pay the $10,000 difference at closing in addition to the down payment and closing costs.
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