Real Estate Contract Low Appraisal: What It Is and How to Handle It
When it comes to buying or selling a property, one of the most important steps is the appraisal process. This is when a professional appraiser evaluates the value of the property to determine the fair market price. However, sometimes the appraisal comes in lower than expected, which can lead to issues and challenges for both buyers and sellers.
What is a Low Appraisal?
A low appraisal is when the value of the property is determined to be lower than what the buyer and seller had agreed upon in the real estate contract. For example, if the agreed upon price was $500,000, but the appraisal comes in at $450,000, this is considered a low appraisal. This can happen for a variety of reasons, including:
– The property is in a declining market
– There are not enough comparable sales in the area
– The property is in a less desirable location
– The property has structural or other issues that affect its value
How to Handle a Low Appraisal
If the appraisal comes in lower than expected, there are a few options for buyers and sellers to consider:
1. Renegotiate the Price
One option is to renegotiate the price based on the new appraisal value. For example, if the appraisal comes in at $450,000 and the agreed upon price was $500,000, the buyer and seller can negotiate a new price that is somewhere in between.
2. Agree to Split the Difference
Another option is for the buyer and seller to split the difference between the original agreed upon price and the appraisal value. For example, if the agreed upon price was $500,000 and the appraisal value is $450,000, the buyer and seller can agree on a new price of $475,000.
3. Ask for a Second Appraisal
If the buyer and seller can`t agree on a new price, they can request a second appraisal. This can be helpful if there were errors or inconsistencies in the first appraisal.
4. Walk Away
If the buyer and seller can`t come to an agreement, and the contract has a contingency clause regarding the appraisal, either party can walk away from the deal.
Conclusion
A low appraisal can be a frustrating and confusing experience for both buyers and sellers. However, it`s important to remember that the appraisal is meant to protect both parties by ensuring that the property is valued fairly. If you find yourself in a situation with a low appraisal, it`s important to work with your real estate agent to explore your options and find a solution that works for everyone involved.