What to do if your appraisal value is too low

When you find a home you want to purchase in the housing market, one of the key tasks that must be done include a property appraisal. An appraisal tells your lender how much the home is worth. This usually means the lender will finance a mortgage up to the appraised value of the property. However, what if the appraisal value comes back lower than your offer? There are often a lot of questions when this situation occurs. Here’s what you need to know.

Can you still buy the home?

If your appraisal value comes back too low, your first instinct might be to panic, but hang on! You may still be able to complete the purchase of the property. The appraisal just represents the maximum amount of financing most lenders are willing to give. However, it doesn’t mean there’s anything wrong with the property. If the home itself is in good condition and the lender is willing to finance it up to the appraised value, this means you have a chance to complete the transaction. If you are able to cover the remaining costs between what you offered, and what a lender will finance, you can seal the deal. For some people, this isn’t an option. However, if you have backup savings and you can use them in this situation, your new property is still in your grasp.

What if you made a firm offer?

A firm offer makes it difficult to back out of a purchase deal for any reason. Firm offers are like a promise to purchase, with no conditions. This means even if your appraisal value comes in low, you are still committed to the sale. You will have to find a way to cover the remaining costs, which can be a challenge if you weren’t prepared for this possibility. Firm offers were common throughout the pandemic, when the market was extremely competitive and buyers wanted to make themselves stand out. However, sellers no longer have such a huge power over buyers. In general, firm offers are risky, even if you want to catch the seller’s attention.

Did you include an appraisal condition in your offer?

A smart offer is one that protects the buyer as well as appeals to the seller. In this case, your offer may have included the condition that the purchase is dependent on the appraisal value coming in at a certain amount. That way, if the value is too low, you can walk away from the purchase without losing anything. Sellers appreciate this condition because it shows the buyer is serious, but it also shows they plan ahead and perform their due diligence. Adding in this condition makes sure there are no misunderstandings or communication issues. We recommend including a condition on your appraisal when you submit your offer. That way, you, your lender, and the seller are all on the same page.

Does having a pre-approval make a difference?

While being pre-approved for a mortgage is an important part of buying a home, it doesn’t have much of an impact on your appraisal. Your pre-approval applies to your finances and what you can likely afford, but it is not specific to one particular property. Just because you can support a mortgage for a certain amount, that doesn’t mean the house you want is worth that amount. Of course, we always recommend getting a pre-approval when you enter the housing market! Just be sure to understand that pre-approvals have little to do with appraisals. If you need a refresher on the benefits of a pre-approval, you can check that out here.

Get a mortgage broker involved

Using a mortgage broker can make your experience much easier if your appraisal value comes up short. We can help you determine your next steps, including whether you can still complete the purchase of the property. If you have been working with a broker since the start of your buying journey, even better! Brokers are able to tell you what you can realistically afford, and what a home’s value might be. We can also recommend real estate agents you can use if you don’t already have one. This ensures you are working with a trusted professional who can help you with your offers and conditions.

An appraisal can be a bit stressful, but with proper preparation, you can limit its impact on you if it comes up short. By including the right conditions in your offer, saving your money, and working with mortgage professionals, you are setting yourself up for the best possible appraisal experience.

If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.