A low appraisal can be an opportunity for a home buyer to negotiate one last time. My buyer was in contract for $306,000 and two weeks before closing the appraisal came back at $300,000. The first thing we agreed on was how to make this an opportunity not a problem. They understood when a home appraises higher or lower it doesn’t mean the house isn’t worth the agreed to contract price. This kept them from being stressed and allowed them to see this as an opportunity, otherwise it would have been stressful and more of a crisis.
The lower appraisal immediately puts the deal on hold since the contract is contingent on a loan which is dependent on the appraisal. We used this as an opening to negotiate a price concession from the seller. We had several factors helping our position:
- The closer you are to the closing and the sellers see the light at the end of the tunnel it can help your negotiating position. This was true in our deal because the sellers were motivated. They already committed to another home and had to close. Our deal not closing put that new home deal at risk
- We could use the bank as the bad guy. The bank and their appraisal are the source of stress not us.
It’s best to not force a solution on the seller so we worked with the listing agent to try to convince the appraiser about the merits of a higher value. This way the seller would not view us as the problem and could see we are trying to solve the problem to their benefit, even if the chances were very slim. When this reached a dead end I simply asked the listing agent for a price concession to make up for the low appraisal. They were motivated enough to lower their price by the entire $6,000. The best part is we were in a no lose position. If the seller wouldn’t have agreed to eat the whole thing the buyer still would have split the difference or paid the original price agreed to in the contract.
Each deal has a different set of facts so you have to play according to the hand you have dealt. In the same situation above if the seller had no mortgage, wasn’t stressed about buying another home and felt they had different options we would not have come out further ahead. We wouldn’t have lost out either, just a question of who has the leverage.