Real Estate

If you’re like most home sellers, you’ll probably do some negotiating to arrive at a final sales price for your property. Depending on the market in your neighborhood, you might need to come down a bit from your asking price to get a deal done, or you might entertain multiple offers that could include prices above what you’re asking.

Hopefully, negotiating a sales price agreeable to all parties can be achieved quickly and painlessly. Sometimes, especially in super-competitive markets, negotiations can become drawn out and even a bit heated. Especially in the case of the latter, it can be frustrating when you finally arrive at a price, and then the house doesn’t appraise for that amount.

When an appraisal comes in lower than expected, it can feel downright devastating for a home seller, but there are some options for when it occurs. Here’s what you can do if your home doesn’t appraise for the sales price.

Drop Your Price

If the agreed-upon purchase price in your sales contract exceeds the appraisal amount, the simplest way to push the deal through is to drop the contract’s purchase price to match the appraisal. There are some potential complications to this approach. Also, depending on your local market conditions, dropping your price is quite possibly your last resort options. (See below for the best option – cash is king! Take a cash offer.)

If you had multiple offers on the home and simply chose the one with the highest sales price, the appeal of that particular offer can become moot if the appraisal doesn’t support that price. If there was another offer at or below the appraised value of the home but attractive in another way (a flexible closing date or money toward your closing costs) you might be willing to revisit it. Whether or not you’re able to do that might depend on if there was an appraisal contingency in the purchase contract and what provisions that contingency gives the seller.

Your real estate agent should be able to advise you on what steps you can take if you want to back out of a deal with an appraisal contingency, but if you’re serious about backing out of a purchase contract over a contingency that’s mostly meant to protect buyers and mortgage lenders, it might be time to get a legal expert’s opinion.

Get Another Appraisal

The appraised value of your home is the opinion of a certified appraiser, and, as everyone knows, different people can have different opinions. Theoretically, a different appraiser may have a different idea of the value of your home.

In practice, things rarely work that way when it comes to a home sale. Lenders are set in their ways, and the appraiser they used is very likely someone they trust. You could spend hundreds of dollars to “appeal” by getting another appraisal, but, in most cases, the buyer’s lender will still base their decision on the first appraisal.

Mortgage lenders make their decisions based on risk, and the lowest appraised value represents a lower risk.

Ask the Buyer to Make Concessions

If your home appraises below the contract price, you might be able to ask the buyer to make concessions. They could, for example, come up with the cash to make up the difference between the price and what their lender is willing to loan. Except in the most drastic conditions of a true seller’s market, this is a difficult request.

Once a home appraises below the sales price, the leverage is mostly with the buyer. But in a market where there is extreme competition among buyers for a limited amount of homes, a buyer might be willing to make concessions in order to secure the purchase. If that’s the case, the seller might ask the buyer to pay some of their closing costs or waive contingencies such as a home inspection.

Accept a Cash Offer

Accepting a cash offer will allow you to avoid this problem altogether. In crazier markets like we’ve been experiencing recently, cash offers have become more commonplace than ever, as it allows the buyer’s offer to be more appealing to a seller presented with a table full of generous offers to review. A cash offer cuts out time and red tape, and it allows you to avoid this issue of what to do if your home doesn’t appraise.

The Bottom Line

When a home is under contract but appraises for less than the agreed-upon purchase price, the buyer usually has an advantage in renegotiating. But a seller in that situation has a few options that might be worth considering.

It’s practically the dream situation for home sellers: You put your house on the market, and you quickly receive multiple purchase offers. It’s not uncommon in a seller’s market, where there are more buyers than there are homes for sale, and it gives the seller leverage.

How you proceed with that leverage is up to you. You could simply accept the offer with the highest purchase price. You could counter-offer each prospective homebuyer, prompting a bidding war that will likely drive up the price. Or you could feel out each bidder, pulling the levers that will benefit you the most.

It’s an enviable position to be in, but deciding to simply accept the highest offer might not always be in a seller’s best interest. If you’re a home seller, here’s what to consider in a multiple-offer scenario.

Cash is king

The old saying is that a bird in the hand is as good as two in the bush. That adage can certainly apply when it comes to any real estate transaction.

The large majority of home purchases that fall through do so because of financing. A lender might make demands of the buyer that they can’t meet. Or the lender sets standards for the property that you might not be willing or financially able to meet.

But cash offers on your property remove the lender from the equation. An offer that’s contingent on financing hinges on more parties. A cash offer eliminates the possibility that there will be some mortgage-related snafu. If mitigating the risk of an agreed-upon purchase is important to you, a cash offer for your home should be weighted accordingly.

Even if you don’t have an all-cash offer, potential bidders with more cash could be valued higher than others. A buyer who can put 20 percent down is less likely to fail the financing hurdle than someone who’s putting 10 percent down, as a higher down payment might mean the difference between qualifying and not qualifying for your purchase price. You might not be immediately privy to a buyer’s cash-on-hand position, but it’s worth trying to ascertain, and a savvy buyer’s agent in a competitive multiple-offer situation might be eager to divulge it.

Timing is everything

Nobody enjoys making multiple mortgage payments, but it’s not uncommon. If the purchase of your next home is set to close in, say, 30 days and the buyer of your current home wants a 90-day closing period, you could end up making two months’ worth of payments on two properties.

Conversely, if your home sells quickly – before you’ve found your next one – a quick close could mean you don’t have a place to readily move into. That could mean moving your possessions twice, renting a storage facility, or moving into your mother-in-law’s basement indefinitely.

As a seller in a multiple-offer scenario, you have leverage. That leverage includes dictating the timeline of events as it pertains to closing and move-in dates. An offer with a price that isn’t quite as high as another might have more value if it involves flexibility that accommodates your preferred timing.

There are other contingencies

The financing contingency is the biggest pitfall to successful real estate transactions, but there are others that can play a big role, too.

Homebuyers are protected by other contingencies, such as appraisals and home inspections. A buyer who is willing to waive their right to a home inspection or an appraisal might be more attractive to sellers than one who is not.

Waiving a home inspection means a buyer can’t back out simply because an inspector found some sort of deficiency in the home. Waiving an appraisal contingency can mean that if the home doesn’t appraise for enough to meet a lender’s approval for a loan, the buyer can bring more cash to the table to square things.

It’s prudent for any seller to at least consider a buyer’s willingness to waive contingencies when weighing multiple offers.

The bottom line

When selling a home, receiving multiple purchase offers is a great position to be in. But there are a few things to consider beyond just the face dollar value of each offer.