Thursday, August 29, 2019 / by Alexander Haigh
What if a property doesn’t appraise?
There are a few ways a transaction can unfold following this event, and how it impacts you depends on whether you’re a buyer or a seller and what your circumstances are.
If you’re a buyer paying cash for the home, you probably don’t want to add an appraisal contingency because you’re already in a strong position to pay less than its market value and receive favorable terms from the seller. If you’re a seller in this situation, you’re probably OK with accepting a cash offer without an appraisal contingency because you’ll have a good idea of what your property is worth and you’ll be able to take advantage of other benefits this offer provides.
Let’s say you’re a buyer using financing to buy a $200,000 property, but you still have enough money down to make up the difference when the home doesn’t appraise. In that case, if you didn’t add an appraisal contingency in your offer, you can’t rely on being able to make up the difference to receive your loan. That’s why it’s always important to add an appraisal contingency in this situation. If you’re the seller here, you’d probably rather not see an appraisal contingency because that’s just one more hoop you have to jump through to sell your property.
A few months ago, I was representing a seller whose buyer was using a VA loan, which requires 0% down, but he still ended up putting 35% down. However, the appraisal came in at about $40,000 less than the list price. Since there was no appraisal contingency, the buyer was obligated to either close on the home or lose the money.
In my opinion, the buyer in this example didn’t have the best representation, so whether you’re a buyer or a seller, you want to work with an agent who understands both sides of the transaction. That’s what a good agent does.
If you have any questions about this or any other real estate topic or you’re thinking of buying or selling a home soon, don’t hesitate to reach out to me. I’d love to help you.