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What Happens if the Home Doesn’t Appraise in a Texas Real Estate Transaction?

9/25/2017

5 Comments

 
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In a Texas real estate transaction involving third party financing, ie. a loan, lender approval is required for the deal to close.  That approval is broken down into two parts.  The buyer must obtain approval for the loan based on their finances, credit, income etc. and the property must also be approved.  Physical conditions within the home may cause the property to become ineligible for funding, or the home may not appraise at the value agreed upon in the contract.  For the purpose of this post, I am focusing on the latter: what happens when a home doesn’t appraise.
 
If an appraisal comes in at a lower value than the agreed upon contract price, there are a few options for how the parties to the contract can handle this scenario. In order to illustrate these scenarios, let’s say that the Johnsons are selling their home to the Smiths.  They have agreed to a purchase price of $360,000; however, the home only appraised for $340,000.
 
The first option is that the sellers and buyers can agree to drop the contract sales price to the appraised value.  However, the Johnsons may not want to just drop the price to $340,000.  After all, they accepted the Smiths offer in a multiple offer situation, and they turned down a $350,000 cash offer.  So, let’s say the Johnsons do not agree to reduce the sales price to $340,000. 
 
This brings us to scenario number two; the Johnsons propose that the Smiths bring $20,000 cash to the table in order to close the deal at the agreed upon $360,000 sales price.  If the Smiths are capable of coming up with an additional $20,000 cash to put down on the property, this solution could work. However, the Smiths are not obligated to agree to this scenario even if they are financially capable of it. 
 
Let’s say the Smiths only have an additional $10,000 they could put towards the home. The Smiths could propose that they put an additional $10,000 down, and that the sales price is reduced to $350,000.  If the Johnsons approve, this scenario would also allow for the transaction to close. 
 
If the Smiths and the Johnsons cannot come to an agreement, the deal will fall through and the earnest money will be returned to the Smiths.    The third party financing addendum used in Texas real estate transactions is very clear on this.  However, there is one other option for the Johnsons and Smiths in this situation.  They could appeal the initial appraisal, or request a new appraisal.  It would be prudent for the Johnsons to make sure that the Smiths would still pay the agreed upon contract price of $360,000 if a new appraisal deems the property to be worth that amount.  Many buyers are inclined to not pay more than the appraisal amount, and in Texas, they are protected from doing so unless they want to bring the extra cash to the table.
 
5 Comments
Burt Silver link
6/28/2018 01:33:47 pm

I really like how you talk about appraisals and what to do if your home comes in at a lower value. This is something that my wife and I have been concerned with because we have been wanting to get an idea of how much our home costs. Maybe we should look into hiring an appraiser and get a professional opinion.

Reply
Erika Rae Albert
6/28/2018 01:54:48 pm

Hi Burt,

It really depends on your situation. Feel free to give me a call or email directly, and I can make specific recommendations for your circumstances.

Reply
Real Estate Company link
7/1/2018 01:27:15 am

I cherish this post especially to be sure. I for one visit this page pretty much regular. It's my drain to my espresso, can't begin mornings without it! It's extremely intriguing and phenomenal, and especially helpful for me. This is an astonishing and fabulous blog. Much thanks.

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Thomas Jameson link
7/29/2019 12:47:05 pm

It's good to know that you have options if your appraisal comes in at a lower price than the agreed-upon contract. My wife and I want to sell our house, and we don't know how much it's worth. We'll be sure to have an appraisal done to help us figure that out.

Reply
Erika Albert
7/29/2019 02:14:59 pm

Hi Thomas,

You may not need to do that. A REALTOR can help you determine a fair asking asking price for your home based on comparable sales. The buyer's lender usually needs to order their own appraisal once you are under contract, so you may want to reconsider ordering an appraisal...

Reply



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    Erika Rae Albert

    Sharing my Austin real estate updates, home owner tips, & more.

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