Here’s what to do when a home doesn’t appraise.

In a normal real estate market where there aren’t multiple offers on every property, two things can happen if a home doesn’t appraise: 1) the buyer and seller can renegotiate the purchase price into a number that works for both sides, or 2) a buyer can simply walk away. 

In this super competitive seller’s market, however, we’re seeing multiple offers on just about every single property. When a seller lists their home, they want a guaranteed sale that involves as little risk as possible. That’s why it’s so important for buyers to include an appraisal guarantee in their offer.

For example, if a buyer agrees to purchase a home for $400,000 and the appraisal comes in at $380,000, that leaves a $20,000 difference. As I said, in a normal market, a buyer could simply walk away, and the seller could lose up to three weeks of time on the market and they’d have to go back on and start all over again. However, right now, there’s so much demand for housing that buyers are more willing to come up with the difference between the home’s appraised value and the purchase price. Buyers do that in a few ways:

1. They find money that could be loaned to them
2. Liquidate 401(k)s
3. Borrow money from their existing properties
4. Use gift money to make up the difference

“This could be the difference between getting a house and not getting a house.”

If the buyer has less than 5% down when they’re buying a property, this could become a real problem, as sellers are choosing offers that have more cash in order to solve this problem. If a buyer goes into the process with 10% down or more, they’re able to use a portion of that to make up the difference.

Now, keep in mind that, in the above example, the new purchase price for the home would be $380,000, but the buyer would contribute an extra $20,000 toward the purchase of the home. That helps guarantee the sale at the agreed-upon price, and it also brings down the monthly payment quite a bit.

Of course, in this market, cash is king, so cash buyers will have the most pull. However, my recommendation for buyers is to use all of your resources when going into the process. Talk to your family, or look at your retirement benefits to see if you can borrow money for a low cost over the course of a 30- to 90-day period. Once you sell a property, you can pay yourself back. Using the tactics I’ve discussed today could be the difference between getting a house and not getting a house.

If you have any more questions about buying or selling real estate, please feel free to reach out to me at any time.