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What If The Appraisal Comes Back Low?

Every appraisal produces a report that displays the market value of the given property, with details on how that figure was calculated. And while you could make the argument that a home's true value is whatever someone is willing to pay for it, lenders lean on the appraisal as a definitive assessment. The appraised value is what they base their loan package on. When the appraised value checks in lower than the negotiated, agreed-upon sale price, it creates a dilema for all the involved parties.

There are several reasons why appraisal results come back low. Multiple, competing offers may have driven the price past its true market value; the seller may have overpriced the home; local market values may have tumbled; the neighborhood may have seen a recent bump in foreclosures and short sales, or the appraiser may have committed an error or oversight.

If the appraised value is only slightly lower than expected, the standard 20% down payment provides a "buffer," allowing you to work with the lender on adjusting the loan amount accordingly. But, if there wasn't an appraisal contingency in your purchase contract, you are still on the hook to take the home at the agreed price, requiring you to come up with the extra money. That could mean putting more money down, or receiving a higher interest rate on your loan.

Cash, as is often the case, can solve the problem, as you can elect to pay the difference out of pocket. Alternatively, if the home was overpriced the seller may choose to lower it in line with the appraised value. You can also request a second appraisal, or try to justify the sale price by having the involved agents compile a comparable sales report and submit it to your lender for their review.

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