What If the House Appraisal Is Less Than the Asking Price?
Many home buyers enter the real estate market to take advantage of a buyer's market, or a market where selling prices have declined because of an over supply of home listings. While you can buy a home for a good price, you can also run the risk that a home you hope to buy will appraise at a value less than the asking price. According to Bankrate.com, lenders generally won't approve a loan if it means their loan totals more than the home's appraised value.
Other People Are Reading
-
Significance
-
While buyers and sellers complain that foreclosure properties lower an appraisal's value, the Appraisal Institute argues that including such comparables provide valuable information about the nature of current market conditions. Most well-informed buyers will consider buying a foreclosed home that meets their living requirements and costs less than a similar house around the block. As a legitimate market factors, distressed properties can lower home values more than buyers and sellers realize.
Misconceptions
-
Many lenders and buyers expect an accurate appraisal using an exterior-only appraisal. However, the reporting form for an exterior appraisal limits the appraiser's research to the restrictions imposed by that format, according to Fannie Mae. The appraiser must view the house from the street and research public records, such as assessor's records, to obtain information about the house. Without a visual inspection, an appraiser may not learn about recent additions or remodeled areas that could increase the appraised value.
-
Function
-
In a declining market, appraisers may find it difficult to locate good sales comparables for your home. Ideally, the appraiser will use a home similar to yours that has sold recently in your neighborhood. If such comparables are difficult to find, the lender may ask the appraiser to expand the geographic search area and extend the time frame to include older sales. When this occurs, the values can get skewed.
Prevention
-
In volatile markets, sellers can hire a good appraiser before they list their homes. Since an appraiser has no interest in listing or buying your home, she can provide you an objective analysis of your home's value. Share the pre-listing appraisal with the buyer's appraiser when he comes to inspect your home. Tell the buyer's appraiser if you know of homes in your neighborhood that have recently sold. Appraisers are always on the lookout for good comparables. Buyers can protect themselves from appraisal surprises by writing an exit clause into the purchase agreement. Ask your lender to order a full interior appraisal and to request an appraiser who knows your market.
Solutions
-
If the home's appraised value comes in low, you have some options. Ask questions about the appraisal. The appraiser may have missed something or a new comparable may become available. If you are a buyer and want to proceed with the sale, increase your down payment. If you pay enough cash upfront, the low appraisal may not kill the deal. Try renegotiating a new price with the seller. If all options fail, you may need to walk away from the transaction.
-
References
Resources
- Photo Credit David Sacks/Lifesize/Getty Images
