Spark Global Limited Reports:
When an appraisal is made, there are three possibilities for the appraiser’s fair market value.
1. The appraised price is lower than the agreed purchase price
If the appraised value is lower than the agreed sale price, you have several options.
You can ask for an evaluation. An evaluation review is when another certified appraiser prepares an independent report using the same elements found in a standard evaluation. The purpose is to allow reviewers to comment on the accuracy and completeness of the initial assessment.
You can also provide any additional amount to make up the difference. For example, if the agreed purchase price is $225,000, but the appraised value is $215,000, you’ll pay an additional $10,000 in transaction costs to make up the difference. Some transaction fees are tax deductible.
Another option is to ask the seller to reduce the purchase price to the amount that best suits your financial situation. This involves having the seller reduce the purchase price to match the appraised value, in other words, the seller will deduct $10,000 from the agreed purchase price.
You can try to negotiate with the seller. You can choose to increase the amount of cash you bring in by $5,000 and ask the seller to lower the purchase price by $5,000. This will make up the $10,000 difference between the purchase price and the appraised value.
The last option is for you to leave. If you and the seller can’t agree on a low valuation, and you sign a valuation warrant, you can choose to withdraw your offer without penalty.
2. The valuation is higher than the agreed purchase price
If the appraised value of the property is higher than the purchase price, that’s good news. You have just bought a house and already have some equity in it. For example, if the agreed purchase price is $225,000, but the appraised value is $230,000. In this case, you have $5,000 worth of equity before you make the first payment. Fortunately, as a homebuyer, the seller can’t ask for more money and the sale of the house will go ahead.
3. Does the valuation match the agreed purchase price?
The valuation usually matches the agreed purchase price. If this is your purchase, then all is well and no additional negotiation is required.
An appraisal is a must if you want to take out a loan to buy your dream home. Although it can sometimes be an unstable part of buying a home, remember that once you successfully go through the appraisal process, you can continue to work with a title company to complete the closing process and ultimately enjoy your new home.