What Happens if a Home Doesn't Appraise?

If you are purchasing a home using a loan, the bank will require an appraisal.  The appraiser visits the home, looks at comparable recent sales, and determines a value for the property.  If the appraiser’s value is less than the agreed upon sales price, you have what is commonly referred to as an appraisal problem (very fancy nomenclature).  Let’s say you made an offer on a home for $350K. The seller’s accepted your offer, and you are getting very excited about moving into your new home.  Then, the appraisal report comes back, and you find out the home only appraised for $330K. You have a few options in this scenario.

​As the buyer, the best way this could turn out for you is if the seller agrees to drop the sales price to $330k to match the appraised value. Conversely, the worst way it could play out would be that you agree to bring an additional $20k cash to closing on top of the down payment in order to buy the home at the agreed upon sales price of $350k.

Often, when a home doesn’t appraise it’s worked out with a compromise. Maybe, the buyer and seller agree to close at $340k with the buyer bringing $10k to the table. Or, maybe, the buyer and seller agree to close at $345k with the buyer bringing an additional $15K to the table on top of the down payment.  Essentially, the buyers and sellers agree to meet someplace in the middle, between the appraised value and the agreed upon sales price.

The final way this scenario could play out is the buyer backs out of the contract. The third party financing addendum specifies that the buyer has an out from the contract if the home doesn’t appraise. The buyer can back out of the deal, and the earnest money will be returned to the buyer. Unless, the buyer has signed a specific addendum to the contract in which they waive this right to back out of the contract due to the appraised value of the home.

The final way this scenario could play out is the buyer backs out of the contract. The third party financing addendum specifies that the buyer has an out from the contract if the home doesn’t appraise. The buyer can back out of the deal, and the earnest money will be returned to the buyer. Unless, the buyer has signed a specific addendum to the contract in which they waive this right to back out of the contract due to the appraised value of the home.

Feeling overwhelmed with all this information? Don’t worry, I’m here to make things as simple as possible. If you or someone you know is looking to buy or sell a home in the Austin area, contact me today.  I’ll make sure you are well-informed of all the steps in a real estate transaction, at the right time, so you can make informed decisions every step of the way.