What do you do when you are in escrow, and the appraisal comes in less than sales price? If you are a Buyer, you’ll have to come up with additional funds in order to close. Or, will you? There may be other options you can consider. For example, you can try to negotiate with the Sellers to see if they will agree to lower the sales price. Of course, most Sellers aren’t eager to reduce the price, especially in today’s market. But, I’ve successfully been able to negotiate a lower price for buyers when this happens. Even if a Seller isn’t willing to come down completely on price, they may be willing to meet you halfway. Every adjustment can help you achieve your goal.
What to Do When Your Appraisal Falls Short
You may also want to contest the comps. Most appraisers are willing to review additional comps that might support your cause. But, be sure you provide them in a timely manner. A good Realtor will make sure this happens. Typically, I like to have comps ready before the appraisal is even performed. Talking to the appraiser prior to the inspection can go a long way in getting the value you need to achieve financing. In my experience, appraisers truly appreciate the added information and help. Be sure your Realtor provides the appraiser with a punch list of upgrades and improvements, too. Sometimes these are missed by an appraiser. So, don’t be shy. Share all the bells and whistles you can.
Of course, even when we do our best to support value, an appraisal can still fall short. We see this in accelerating markets, like the one we are in now. Tight inventory, high demand, and bidding wars are creating situations that are ripe for low appraisals. We are also seeing more drive-by appraisals due to COVID-19, not to mention fewer comps due to lower sales volume. So, what’s the answer?
Work With the Appraiser
It boils down to just a few things — work with the appraiser to get the value up, get the Seller to lower the price, come up with additional cash, or perhaps mix it up. Sometimes we see Buyers come up with additional cash to close and Sellers come down. We also see appraisers make adjustments. On rare occasions, even the lender or Realtor will contribute something to close the appraisal gap. The point is that we can usually work it out and move the transaction forward. But, you’ll still need to feel comfortable buying a property that is above appraised value.
It May Be Worth Paying More Than Appraisal
Given today’s competitive interest rates, most Buyers are just happy to secure a property. They recognize that even if they are paying more than appraisal, the low rates will make up for what may be an inflated purchase price. Besides, as long as they plan on holding the property for a reasonable period of time, they know it’s a pretty safe bet. After all, Hawaii properties have a great track record when it comes to appreciation!
So, if your appraisal comes in low, don’t panic. Work with your Realtor, lender, and appraiser, along with the Seller’s agent, to come up with a good solution. A solution that will assure you the keys to your new home!