What to do if your house doesn’t appraise??

Here in the Houston market, we are seeing record low inventory. There simply are not enough homes on the market for all of the people who are ready to buy! Because of that, bidding wars are becoming more and more common, and many homes are selling lightning fast!

Bidding wars are great for the seller because they can drive the price of the home upwards, but that can also cause troubles down the road.

Let’s pretend that you list your home for $299,900, and you get multiple offers. Your agent asks the buyers for their “Highest and Best” offers by noon tomorrow, and you ultimately accept an offer for $315,000 LUCKY YOU!!!

Sooner or later though, the house will be appraised, and if the appraiser doesn’t agree that the house is worth $315,000 there could be big headaches in your future. Let’s suppose that your house appraises for $305,000 so there is a $10,000 difference between the appraisal value and the contracted sales price. I’ve actually seen cases where the discrepancy was MUCH larger.

So what do you do if the house doesn’t appraise for the contracted sales price? You have 3 options:

  1. The buyer can pay the extra amount. Maybe the buyer loves your house so much that they would be willing to pay an extra $10,000 out of their pocket even though the appraisal says it isn’t worth that. The bank will NOT loan this money, it must be an additional down payment. Might not be a huge problem at $10,000, but what if the number is much larger? Yikes.
  2. The seller might just agree to sell the home for the lower price, and lose out on that extra $10,000. Maybe out of desperation the kindness of their hearts, they will allow the sale to proceed at the lower price.
  3. Both parties can give a little and meet somewhere in the middle. This is a common solution to get the deal done and to everyone’s satisfaction.

The important thing is to know that this is a possibility, and that you may want to consider your options before going into a bidding war. Appraisers aren’t trying to make our lives difficult on purpose, but their process requires them to look at home sales over the past 6 months, and in a market where prices are raising, this can slow the pace of upward growth.

Be sure that your agent explains all of your options and that you are open to working through this tough situation towards your ultimate goal of selling or buying the home.

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