A low appraisal can complicate the home-buying process because a lender will only finance a percentage of the appraised value.
What should you do? Walk away from the sale? Fork over the money to cover the difference? Try to renegotiate with the seller?
There are ways to deal with the issue but first you must know why it happened. Here are some common reasons.
1. Square Footage
Square footage plays a major role in value, especially in condos. Let’s say you are buying UNIT 2A which has a brand new top of the line kitchen and UNITS 2B and 2C recently sold for less and they are exactly the same size with new kitchens but not the same quality as your kitchen (Custom cabinets, Wolf Appliances, Sub Zero refrigerator, granite counters, expensive flooring and lighting). It will be hard for an appraiser to make an adjustment to your unit to get the value that you may think the much nicer kitchen should bring.
2. Bidding Wars
The Cambridge and Somerville markets are currently hotter than ever and many buyers are intentionally paying over the asking price because the low inventory and high demand is spurring bidding wars. It is an emotional choice. Sometimes, the seller is strategically pricing the property low to create the bidding wars and the appraisal will bear out the price paid. Other times, the appraiser’s fair market value will be less than the price paid. If you are in this situation where you are paying over asking price, prepare yourself for the possibility that your appraisal may come in low. Have a mortgage contingency clause that is specific and can give you the option of walking away and definitely prepare for putting more down if the appraisal is low and you really want the property.
Additional questions? Get in touch with Helen directly:
Direct Line: 617-762-7154