What if the house appraisal comes in low?
May 11, 2021 10:44 AM   Subscribe

I've made an offer within my budget on a fantastic house. Since the market is so hot and there have been recent bidding wars nearby, when I saw that comps from the last six months were $306-317,000 (list was $310,000), I decided to offer $325,000. As part of the offer, I also offered a $15,000 appraisal gap. Now I'm scared that the appraisal will come in low. What happens if it does?

If it comes in < $15,000 low (as in, appraises for between $310 - 325,000), can I still ask the sellers to come down in price a bit? Or is that all done and dusted?

What if it comes in below the $15,000 gap (as in, it appraises for less than $310,000)?

How likely do you think a low appraisal might be?


I can pay cash to make up the appraisal gap if need be, but of course I would prefer not to have to. Basically, I would have to reduce my emergency fund and cash in bonds or take some funds out of my Roth. Doable but not ideal.

This is a very hot market and the offer deadline was only a couple days after the house listed. All I know about the other offers is that mine was chosen -- I don't have any idea what the other offers actually were.

Also, Redfin lists the home value as $320,000, if that matters.

Zillow is all over the place, listing this home value as $295,000 and then what seem to be identical homes on the same street "zestimated" as $350,000, so I'm not even worrying about Zillow at this point.
posted by nowadays to Work & Money (15 answers total) 2 users marked this as a favorite
 
Mine did. I paid for a second appraisal. Things may have changed in recent months but I bought a house a year ago and they were doing "covid appraisals," which was essentially a drive by and look at the (bad and out of date) listing photos and then comparison of that to other recent sales in the neighborhood. They didn't go inside my house so didn't see any of the recent renos that had happened.

Second appraisal they actually went in the house and it came back with a nice cushion over the sale price. Absolutely worth the 400 bucks or whatever it cost to do it twice.
posted by phunniemee at 10:52 AM on May 11, 2021 [1 favorite]


I mean, that’s what the appraisal gap clause is for, so you’d presumably be in breach of the terms of the offer, modulo the fine print. You can always get a second appraisal though.

Did you waive inspection? You can always negotiate a price cut or back out based on the results of that.
posted by supercres at 10:56 AM on May 11, 2021 [1 favorite]


This happened to me in 2016 in San Francisco. They had us reappraise the house and our agent guided the appraiser in the right direction. (Side note: appraisals are a little ridiculous and are a trailing indicator in a hot market.)

Ultimately, we had to make up the difference in cash so that the lender felt comfortable with us... but we were already putting 30% down, which more than covered the difference.

Don't trust the online valuations. They're generally an okay ballpark, but as they say, the value of a thing is what someone will pay for it. You're offering $325k, the seller accepted, so the house is worth $325k. This data point will go into other appraisers' comps and the online estimates and suddenly everything else in your neighborhood will be "worth more."
posted by kdar at 10:57 AM on May 11, 2021 [2 favorites]


This happened to me last fall. If it's within the gap, you are bound to the contract and would forfeit your earnest money if you walked away.

If it comes in below $310k, you might be able to get them to negotiate—you bid over the asking price, you're pretty far down the buying path. My realtor had us offer to split the difference, i.e. if it appraises for $305k they would drop the sales price by $2.5k and you would need to bring an extra ($325-307.5=) $22.5k to close. Didn't work for me, but it might for you! Good luck!
posted by Maecenas at 11:16 AM on May 11, 2021


Response by poster: you’d presumably be in breach of the terms of the offer

FYI, per contract law this would not be a breach. A modification request by one of the parties to the contract is perfectly legal. A breach would be a failure of performance.

I'm wondering if a low appraisal could be a negotiation point. My goal would be something like: appraisal comes in at $320K (i.e., $5K too low), so I request a $5K credit toward closing costs. My usual opinion is that it doesn't hurt to ask. But I don't know what the other offers were so I'm not sure what leverage I have, or whether this would be totally inappropriate in the world of residential real estate or what.

I asked my real estate agent this same question (actually, all these questions) but I'd like to hear from a broader swath of people what their experience/opinions are.
posted by nowadays at 11:41 AM on May 11, 2021


I think it's pretty unlikely an appraisal will come in under your offer. Your offer is a significant factor in determining a homes value, especially when prices are moving quickly. In general, appraisers want to match your offer because banks want to lend you money — the more the better. Barring extreme cases, it's basically in everyones best interest for the appraisal to match your offer. Not really the most impartial system.
posted by TurnKey at 11:53 AM on May 11, 2021 [4 favorites]


It is correct that a modification request is not a breach. But you have no leverage unless you have a contingency in the offer that you can use to cancel the contract. Why would a seller accept a modification if you don't have a contingency that lets you walk when they say no?
posted by primethyme at 11:58 AM on May 11, 2021 [8 favorites]


I don't see that you have any negotiating room here. How is it in the seller's interest to give you a credit? In this market, if your deal doesn't go through, the seller can likely quickly get another deal.
posted by NotLost at 12:05 PM on May 11, 2021 [1 favorite]


I don't know that it's true, but when I was in a similar situation a couple years ago here's what I told myself. The appraisal serves as guardrails against truly terrible deals. If an appraiser got anything like a reputation for screwing up OK transactions, nobody would hire them. And the realtors and loan officers will have ways of making it work out anyway.

FWIW, we're up 20% or so over our pretty high offer in three years. In another three years? Who knows... up 50%,?down 50%? space moneys come flying out our noses and invalidate capitalism?
posted by wotsac at 12:25 PM on May 11, 2021


Response by poster: Why would a seller accept a modification if you don't have a contingency that lets you walk when they say no?

Agreed, but the sellers are human, so it wouldn't hurt to ask. If my offer was much higher than the other offers and above the appraisal, then it's possible they'd find a closing credit to be a reasonable request. Not probable but possible.

The leverage would also be that if the house isn't appraising, that my offer might still be the best (and fastest) they can get closed. Possibly even after netting with a closing credit.

I take your point that there's not much room for negotiation, though.

I think I acted too much in the heat of the moment and I should have offered only $315-320,000 -- but my own experience in the market made me feel like $325,000 was reasonable. Just a week or two earlier I put an offer of $315,000 in for a "worse" house in a similar neighborhood about a mile away, and that offer got blown out of the water -- the winning bid was over $350,000 (that house listed for $290,000). It's all for the best because this house is much better for us location-wise and even "looks"-wise, but I think that losing that bid so badly spooked me into being too aggressive with this one.

I think it's pretty unlikely an appraisal will come in under your offer. Your offer is a significant factor in determining a homes value, especially when prices are moving quickly.

The appraisal serves as guardrails against truly terrible deals. If an appraiser got anything like a reputation for screwing up OK transactions, nobody would hire them.

Thanks. That's what everyone else has been saying as well, and I really hope it's true. I just see these comps and think I'm going to be $5,000-10,000 over them, and it freaks me out. This house has its building systems all upgraded/new and literally no deferred maintenance, plus is in a very good commuting location, plus is situated very nicely by a number of beautiful parks, plus has potential for a couple easy/cheap upgrades that add a lot of value -- that's what made me feel good about my offer and I hope the appraiser sees all of it, too.

I will consider my Plan B to get another appraisal if this one doesn't work out. Glad to hear that the second opinion often comes through.

OK, will stop threadsitting. I appreciate hearing about everyone's experience and thoughts.
posted by nowadays at 12:43 PM on May 11, 2021


I bought a house 3 years ago at $10,000 over appraisal in a market that was already somewhat hot (though nowhere near what it's like today). The house was listed at $330K, and I initially offered $335K. There were two other offers over list, so the seller solicited a second round of bids. I increased to $345K and did the whole "write a letter" deal at my realtor's suggestion; turned out to be a good move because the seller preferred to sell to a local rather than to out-of-state investors, even though they had higher, all-cash offers.

The appraisal came in at $335K. To this day I'm convinced the appraiser intended to appraise at the offer level but got mixed up and used my original offer rather than my final one. The comps cited weren't really comparable because houses come up for sale in my neighborhood very infrequently. My realtor offered to split the appraisal gap with me, so I chipped in an extra $5K down and she took $5K less in commission (which I was surprised by, since that was probably half her commission). Not sure how common that is, especially in the current environment, but I suppose it might be possible if your realtor (if you're using one) really doesn't want to lose a sale in a hot market.
posted by bassooner at 2:30 PM on May 11, 2021 [1 favorite]


As I read it you agreed to pay $325K for a house that appraises at $310K or higher. If it comes in below $310K you have a chance to negotiate.

As long as it appraises above $310K then I'd expect the deal would move forward and you'd bring additional cash to make up for whatever LTV ratio your lender is requiring for your loan.

Depending on what other contingencies you have you may find an excuse to back out or renegotiate, but I certainly wouldn't premise it on the fact that the appraisal was $5K under your offer because you already said you were willing to cover a $15K spread and it's likely what made your offer attractive.

You can try or do what you want obviously, but I wouldn't have a lot of patience for you as a seller if you tried what I would view as a bait and switch.
posted by willnot at 3:06 PM on May 11, 2021 [2 favorites]


Also, the lower your loan is, the less you will have to pay over time. That seems like it would actually be better for you in the long term.
posted by NotLost at 3:19 PM on May 11, 2021


Did you use the appraisal company recommended by your realtor or lender? If so, odds are overwhelming that the appraisal will magically match the offer. (That's been my experience through several purchases.) As mentioned above, the appraiser's job is ultimately to make sure the transaction goes through if it's even slightly plausible the purchase price represents the "actual" value of the property. Things have to be really sideways for an appraisal to come in low enough to scuttle the transaction.
posted by maxwelton at 7:27 PM on May 11, 2021


Response by poster: I spoke to my real estate agent, and she said that if the appraisal came in a bit low, she would feel comfortable going to the seller and asking for a credit toward closing.

But happily, it never came to that! The house appraised at sale price! What a relief.
posted by nowadays at 11:13 AM on May 14, 2021


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