How to Handle Low Appraisals (Part 1 of 2)
What should you do if an appraisal is lower than the selling price?Posted on December 17, 2012 by Nikki.
As prices of Sunnyvale real estate continue to rise, a unique problem is starting to occur. Appraisals are sometimes coming in lower than the selling price. That can present a strange set of problems. To review, here’s how the process generally works.
Let’s say you are seriously looking for a Sunnyvale home, and you’ve already been pre-approved and pre-qualified for a $600k loan. You also have $110k for a down payment. As you are shopping for a home, you find a perfect one at an asking price of $700k. You really want that house, and you bid $710k. After reviewing several offers, the seller accepts your offer, and you begin the official purchase.
That process will, of course, include an appraisal of the home’s value. Appraisals are usually based on comparables of similar homes sold in the area with adjustments made for the differences, i.e. an upgraded kitchen, a smaller yard, more amenities, etc. The key is that these appraisals are generally for homes already sold. If prices are rising, these “old” prices may not accurately reflect current home values. If the appraisal comes in low, say $680k, the bank may only want to lend you $580k instead of the $600k you have qualified for. Basically, the bank doesn’t want to overextend itself and run into a possible condition where you owe more than the home is worth.
This problem can also occur if the appraisal just doesn’t accurately value the home properly. Appraisals can be as much art as science, and perhaps that individual appraiser wasn’t an expert in that particular location, those specific upgrades or home improvements, recent school ratings, planned developments in the community, etc.
No matter what the cause, what are your options if that happens? We’ll address that in part 2 of this blog. In the meantime, if you have any questions or would like some help finding a Sunnyvale home perfect for you, please contact Nikki Langendorf at 1-408-896-4221 or firstname.lastname@example.org. I’m here to help!