Having an appraisal come in lower than the buyer’s offer is not the end of the world. It does mean, however, that the property’s fair-market value is lower than the agreed-upon purchase price. This is known as an appraisal gap. In this situation, there are a few options, as well as a couple of ways for both parties to safeguard themselves. Let’s dive a little deeper:
Sellers Can Benefit from Appraisal Gap Coverage
Appraisal gap coverage is a particular clause written in a purchase agreement. It states that the buyer will cover the difference between the agreed-upon purchase price and the appraised value, up to a certain amount. This accomplishes a couple of things:
- It strengthens the buyer’s offer by showing a serious commitment to the purchase and provides the seller with assurance that a predetermined minimum amount will still be paid, even if the appraisal comes in low.
- Slightly safeguards the buyer from overpaying, knowing there is a limit on the amount the buyer should cover if the appraised value comes in significantly lower than the purchase price.
An Appraisal Contingency Clause Can Be A Buyer’s Safeguard
On the other hand, buyers can include an appraisal contingency clause in their purchase agreement. This clause gives the buyer the right to walk away from the transaction if the appraised value comes in lower than their offer.
Alternatively, the buyer can use this clause as leverage to renegotiate the sale price with the seller. Be sure to consult your realtor to determine the best course of action for your specific situation.
TAG Tip: A reconsideration of value involves your realtor providing three additional comparable sales to support the home’s value. The appraiser will review these new comps and determine whether a revised property value is warranted.
How to Negotiate with the Seller After A Low Appraisal
Depending on the purchase agreement and contingencies specified, there are a few options for the buyer if the appraisal comes in lower than their offer:
- Request a price reduction
- Propose splitting the difference between the appraised value and the agreed upon purchase price
- Request seller concessions, such as covering cosing costs
- Consider a re-appraisal- we can help with that!
- Walk away from the transaction
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