Did your appraisal come in above? below? Know what the repercussions are!

Dated: 06/14/2019

Views: 76

What Happens When Your Sales Contract and Appraisal Don’t Agree

It might surprise some to know that the sales contract isn’t the final value of the home, at least in the lender’s eyes. When negotiating the price of a home market forces shape a price based upon the most the buyers are willing to pay with the least amount the sellers will accept. This assuming there are no external influences that may affect the seller’s list price.

An external influence might be someone forced to relocate quickly and needs to sell before being able to buy and finance a subsequent property. Or maybe the home is getting close to being foreclosed upon and the owners need to sell the home fast and pay off the outstanding mortgage balance. Outside of these external factors, it’s assumed the final sales price reflected current market conditions.

Most often the appraisal reflects the sales price. When an appraisal is ordered, the appraiser receives a copy of the sales contract showing the amount the buyers and sellers agree to. Before the appraiser steps one foot outside there is some initial research completed. The appraiser looks at recent home sales in the area that are similar to the subject property.

In most states, the recent home sales information is readily available via entries in the public record. Some states however keep this information private. If someone has access to the Multiple Listing Service, this information is easily available. Either way, the appraiser does some initial homework before inspecting the property.

It’s important to note there the appraiser’s job is to establish value and is not the same individual who will physically inspect the property for any seen and unseen defects that need some attention. The appraiser’s job is to establish value based upon recent sales of homes in the area. If the sales contract says the agreed to price is $250,000 then the appraiser will research other homes in the area and compare them all. Sometimes the appraised value comes in higher than the sales price.

But what some think is this extra value is immediately available to the buyers in the form of equity or even help out with the down payment. Neither applies. If the appraised value comes in higher, well, that’s great for the buyers. It’s when the appraisal comes in lower that can cause some problems.

The lender will always use the lower of the sales price or appraised value when evaluating a loan application. If the sales price is $250,000 and the appraisal $260,000, the lender still uses $250,000 as the value. If the price is $250,000 and the appraisal $240,000, the lender will use $240,000. This leaves the sellers with a dilemma. Either come in with the extra $10,000 or walk away from the transaction entirely.

There might be another option which is to order another appraisal, but the new appraiser will be using the very same information the first one did. Or, the sellers will agree to a new, lower sales price. Most often this is the result because the sellers know they’ll more than likely face the same issue with the next offer and understand their property might just be overpriced for the area.

Life is a 24 hour business, getting married or divorced, having kids or adopting,

downsizing or upgrading, starting a new career or retiring, and moving to a different

state or country. There’s a home for every stage in your life. Let me help make your life easier.

Denver CO Homes for Sale – Wan Lim, Associate Broker/ Realtor

Your local realtor serving Cherry Creek, Centennial, Denver and the

surrounding communities. Purchasing a home is not easy, but it can be

with me! I will work tirelessly with investors, buyers and sellers to 

save you time and money but most importantly to get you into the 

home of your dreams! Call Wan Lim anytime at (303) 910-0818

You can also text 'Wan' to 85377 for my mobile business card!

Blog author image

Wan Lim

My name is Wan, I am passionate and driven to help everyone I can in buying and selling real estate. Just a little bit about me, I graduated Colorado State University with a degree in Hospitality Mana....

Latest Blog Posts

Thinking about investing in Multi Family?

If your answer is "yes" or "maybe" keep reading!  If you answered "Hek no!  I never want to be a landlord!"  Not to worry of I have other methods of helping you invest in real estate.

Read More

Toxic Money Habits

Well, that sounds intense!  I just picture the green ooze for Teenage Mutant Ninja Turtles II burning away at a pile of money :(This is a great little piggy back off of my previous blog "The

Read More

"The Magic Debit Card"

Also known as a credit card, and is one reason why so many of us are broke.  Are you spending more money than you make or are you spending money just as fast as you earn it? It's time to

Read More

Helping buyers with student loan debt get their dream home!

Young adults coming of age in America since the financial crisis have had to battle increasingly higher college tuition and fees at the same time that many of their parents were trying to recover

Read More