What Happens if the Appraisal Comes Back Low?

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. 

Seller Side
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.

Buyer Side
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.

Compromise
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.  

Terminate
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.