First of all, if you are dealing with a contract, you'll want to defer to the language written in the contract. Appraisal contingencies are often not built into a standard offer but are added to spell out what happens in the even the appraisal comes in lower than the purchase price.
If an appraisal comes back low, it is possible to challenge the appraisal report. You can look over the report and give them alternative comparable properties that help support the purchase price. If the appraiser will not make adjustments, here is what happens.
If you are the sellers you will likely ask the buyers to come up with difference in cash to make the deal work out. To explain this more, the buyers will not be able to get a mortgage for above the appraised value and therefore would need to bring the difference in cash should they want to still buy the house. This could look like the following:
$205,000 - Purchase Price
$200,000 - Appraised Value
$5,000 - Buyer pays the difference in cash to be able to buy the house.
If you are the buyer, you will ask the seller to reduce the cost of the house since the appraisal came back low. So, in the above example, you would ask the seller to reduce the purchase price to $200,000.
There is also room to compromise. Using the same numbers as above, a possible compromise would be for the Seller's to reduce the cost of the house by $2,500 and the Buyer's to bring an additional $2,500 to make up the difference.
Finally, if neither parties are willing to budge, the final option is to terminate the contract.
If you have any questions about how to protect yourself from appraisals in selling or buying a house, call or email me.
How to Prepare for an Appraisal
If you are interested in getting your house ready for an appraisal, someone is likely applying for a loan on your house. Whether someone is buying your house, or you are refinancing, you will want your appraisal to be as high as possible. So, how does one help get a higher appraisal?
Let me first explain what you can't change. You can't change what your neighbors are selling their houses for. Comparable properties, in your neighborhood are going to play the biggest role in the valuation of your house.
But there is hope! If you want the best shot at your house appraising higher, there are a few tips and suggestions I can offer.
1. Finish off unfinished areas: If you have an almost finished area, it may not hurt to spend the money to finish the area. Increasing your sqft will help add value to your home.
2. Add a Bedroom or Bath: If you have an area in your house that can be changed into an additional bedroom or bath, it is likely worth your time to add value to your home.
3. Stage your house: Just as you want to make your home inviting for potential buyers, make your home inviting for the appraiser. Make every room feel big and open by removing clutter and making sure the area is well lit. You may consider painting.
4. Landscaping: Your yard does make a difference. Take some time to landscape your yard. You can plant flowers, mow the lawn, clear out brush, pull weeds, add a fountain, add a coy pond, etc.
For all of these tips, it doesn't hurt to higher professionals. Contact me for my recommendations.