Low appraisals have become the norm for the inflated real estate industry lately and for good
reason. Bidding wars have caused home prices to inflate significantly, but the prices aren’t
always warranted.
Many buyers covered the difference because they had faith the values would bounce back and
the home would be a good investment, but not all buyers are willing or able to do this.
So, what can a seller do if the appraisal comes in low?
It’s a tricky answer. Here’s why.
Purchase contracts are legally binding. Unless the seller has a contingency (which is rare), the
buyer commits fraud, or the buyer breaches the contract, sellers can’t break a contract without
consequences.
But there are options.
Sellers Don’t Have to Lower the Price
Just because the appraisal comes in low doesn’t mean you have to accept that price as your
sales price. If you and the buyer already entered a contract, that’s the price you agreed on. If
the buyer can’t make up the difference between the appraised value and sales price, the buyer
can back out, which then ends your contract.
You can Meet in the Middle
If the appraised value isn’t too different from the sales price, you might consider meeting in the
middle. For example, you signed a sales contract for $200,000 but the appraisal came in at
$180,000.
You can lower the price to $190,000. This means the buyer must bring an additional $10,000 to
the table and you ‘eat’ $10,000.
You aren’t obligated to do this, it’s just an option.
Have a Contract with a Kick-Out Clause
A sales contract with a kick-out clause allows you to continue marketing and showing the
property. If by the kick-out clause date you find another buyer willing to pay the sales price
despite the lower appraised value, you can ‘kick out’ the original buyer and accept the new
offer.
The original buyer gets a certain amount of time to remove their contingencies and buy the
home at the higher price or you can move on with the new buyer.
Appeal the Appraisal
It’s a long shot, but you can also appeal the appraisal. You can ask the appraiser for a
reconsideration of value based on the information you found or information from your
reputable real estate agent.
Appraisers rarely change their minds, but if it’s your only way to fix the situation, you could
consider it.
Final Thoughts
Before signing a sales contract, make sure you’re working with a reputable real estate agent
who understands local values. Signing a contract for a lot more than a home is worth might only
lead to upset buyers and canceled contracts.
Working with a reputable real estate agent, though, you’ll have a feel for the industry and the
area’s values, ensuring you get what you want for the property. If you find yourself in a contract
with a low appraisal, you have options, but you’ll need proper representation to help you use
them.