Especially lately, the impact of an appraisal report is bigger than ever on the sale of a home.

In what is the craziest “ Seller’s market” that I have ever seen in my career, prices have escalated sometimes as much as 20% over where prices were a year ago.

With this said, it is not uncommon to have a house go on the market, receive multiple offers the first day, and go to contract for potentially 30% or more over asking price.

With cash offers, the sellers don’t have much to worry about in this scenario.

However, when a property is being financed, the bank will require an appraisal as a part of the mortgage commitment process. This is done to protect he consumer and the bank of course to make sure that buyers aren’t overpaying for a property.

So, what happens if the appraisal comes in much lower than the contract price? Does it “ Kill the deal”?

Although it is certainly a huge “ hiccup” it does not necessarily mean that the deal has to die. Should both parties want to keep the deal moving forward there are a few options:

Sellers agree to reduce the purchase price to match the appraisal price
Buyers agree to make up the difference by paying in cash for whatever the price discrepancy is. This may or not be an option depending on the buyer’s loan program.
Because the buyer is protected by their mortgage contingency ( here in the Berkshires we have this contingency in place) they may opt to terminate and get their deposits back. This would put the sellers back to square one.

So, you can see from all of the above how important the appraisal process is. This is also one of the reasons that I make sure to discuss this with my sellers prior to listing their home.

It is so incredibly exciting for a seller to get those multiple, over asking offers. But they need to know that there is also the risk of not reaching the offer price when the appraisal is done so until that part of the process is completed, stamped, and approved, they haven’t quite crossed the finish line.

One last note to be aware of is that cash buyers can also ask to have an appraisal done. This doesn’t mean that they can get out of the contract if the appraisal does not meet the offer price unless they added a financing contingency.

Big picture…. READ YOUR CONTRACTS thoroughly ! If you have a great realtor working with you, I am sure that they will go through every paragraph of that offer with you before you sign it. We also have wonderful attorneys who are part of the transaction from day 1.

Hoping this post provided some useful information.

Tanya