Buying a home can be a long, drawn-out process with not a few pitfalls along the way. And one of the worst-case scenarios is when you find a house you love, make an offer the seller accepts . . . and then the appraisal comes in substantially below the agreed-upon sale price. So, it seems, you won’t be able to buy the house because your lender now won’t finance the amount the seller wants. But all isn’t necessarily lost (especially if you have a good real estate agent). Here’s how to handle a low appraisal when buying a house in Tampa Bay.
How Appraisals Work
No matter how much you love the house, when you look at it objectively, you don’t want to pay above the fair market value. And your bank or mortgage company certainly won’t lend you more than the house is worth according to appraised market value. Lenders protect themselves by lending only at or below fair market value so that if borrowers default, they can recover what they’ve loaned.
Generally, in order to arrive at a property’s valuation, the appraiser will first do a walk-through of the house, taking photos and making notes. Then the appraiser will perform a comparative analysis. This means that the appraiser will look at very similar, recently sold homes in the neighborhood. The price at which these homes sold will give the appraiser a fairly accurate idea of the market value of the home you’re interested in.
For example, if it is a three-bedroom, two-bath, ranch-style home, the appraiser will consider three-bedroom, two-bath, ranch-style homes within a one- to two-mile radius that have sold within the last few months. It doesn’t really matter what you or the seller thinks the home is worth. Its value is determined on the basis of the recent sale of similar, nearby homes.
Most Common Reason for a Low Appraisal
The most common reason for a low appraisal in Tampa Bay is a lack of anything to compare it to. If, for example, no other three-bedroom, two-bath, ranch-style homes have sold in the area recently, then the appraiser has nothing to compare it against to arrive at a valuation. The appraisal then becomes much more of an educated guess and may be lower than what you expected. And, as a result, it may damage your chances of getting financing at the current sale price.
Handling a Low Appraisal When Buying a House in Tampa Bay
But when the appraisal comes back low, you do have a few options, such as:
One thing you can do in the case of a low appraisal is simply to move on and start looking at other houses. This probably won’t be your first choice, especially if you really love the house, but it is often the easiest and most stress-free way to handle the situation. For if you can’t get the appraisal up, then you’ll have to chip in a big chunk of your own money to make up for what your lender is unwilling to lend.
You can also negotiate and try to get the seller to come down on the price so that it is more in line with the appraisal. Sometimes sellers are willing to be a little flexible if they know the alternative is a no sale and a house sitting on the market.
WAITING AND WATCHING
Another option is just to wait and see what happens. If your appraisal was low, another buyer’s probably will be too. And that means the seller won’t be able to sell the house, and it will sit on the market unsold. When that happens, you can make another offer that is closer to the appraised value – and the seller just may take it.
The Key Ingredient in Handling a Low Appraisal
The best way to handle a low appraisal when buying a house in Tampa Bay is not to handle it at all. That is, you shouldn’t try to take care of it yourself at all – rather let you experienced agent handle it. A good real estate agent knows what homes in the area are worth and will have a significant amount of negotiating experience under her belt.