What Happens When a Home Does Not Meet Appraisal For the Home Buyer
When a home doesn't appraise for the agreed-upon purchase price, it can create challenges for the buyer because the appraisal value directly impacts how much a lender is willing to finance. Here’s what happens from a home buyer's perspective:
1. Lender Will Only Loan Up to the Appraised Value
Lenders typically base their loan amounts on the appraised value, not the purchase price. For example, if the agreed price is $300,000 but the appraisal is $280,000, the lender will only finance based on $280,000.
This means the buyer must cover the difference out of pocket or renegotiate.
2. Options for the Buyer
If the home doesn't appraise, the buyer has several options:
* Negotiate a Price Reduction: The buyer can ask the seller to lower the price to match the appraised value.
* Pay the Difference: The buyer can choose to pay the gap between the appraised value and the purchase price in cash.
* Challenge the Appraisal: If the buyer believes the appraisal is inaccurate, they can request a review or a second appraisal (though this process can take time and may not always result in a change).
* Walk Away: If the purchase contract includes an appraisal contingency, the buyer can back out without penalty and get their earnest money deposit refunded.
3. Impact of No Appraisal Contingency
If the buyer waived the appraisal contingency to make their offer more competitive, they may be obligated to proceed regardless of the appraisal, potentially requiring them to cover the shortfall or find other financing.
4. Additional Costs
If the buyer decides to pay the difference or renegotiate, they may also face higher upfront costs, affecting their cash reserves for closing and future expenses.
5. Importance of Communication
This situation underscores the importance of clear communication between the buyer, their real estate agent, and their lender. They can help the buyer explore their options and make an informed decision.
