A bank appraisal is normally just another milestone toward a successful purchase. But if the appraiser reports a value lower than the purchase price it can cause issues in the purchase.
What’s The Function Of An Appraisal?
When selling your home you are most likely going to sell it to a buyer that requires a bank to finance the purchase.
Before a bank sells a mortgage on the home, they need to put a dollar value on it. One of the reasons this is done is so that they don’t lend you more money than the home is worth.
What Happens?
After the buyer has agreed on the purchase after inspections the bank will send out a 3rd party appraiser. These appraisers inspect the property and report a value to the bank.
Why Is A Value Lower Than The Sales Price Problematic?
For example, if the list price is 210,000 but the bank values the home at 200,000. The buyer will now be surprised by a 10k shortfall.
An appraisal value that is lower than the sales price can cause two outcomes that aren’t ideal for the seller.
#1. Force a price reduction
A bank appraisal will certainly hold a lot of weight with a buyer and most won’t feel comfortable buying a home for 10k more than the bank says it’s worth. In this scenario, it’s common for them to ask to lower the sales price to match the appraisal price.
#2. Your Buyer Loses Financing
Even if the buyer still agrees with the list price, they may not be able to afford it. Chances are they are prepared to pay a down payment but the 10k price gap in this scenario would have to be paid on top of that to get financing.
What Can Be Done?
The first and foremost is preventing this from ever happening by marketing your home with a price that will likely meet the appraisal value.
That said, there are cases where appraisers miss. If an appraiser does a poor job of evaluating the home or considering comparable prices there is some recourse.
Baked into your contract with a buyer is a clause that allows you to see the appraisal report if it causes renegotiation of price. This gives you and your agent time to challenge the appraisal and build a case as to why the value is higher. It takes real data to influence an adjustment but we’ve seen it happen.
How Can I Avoid This?
When pricing your home, it’s important to create a defendable price. It will certainly be challenged. It will be challenged by buyers, their agents, and then the bank appraisers. Crafting a defendable price for your home is one part of our free home selling strategy call. It’s a no-obligation call that helps homeowners get clear on how to sell their home using a proven roadmap we’ve developed after helping hundreds of clients. You can schedule your call here.