Home Appraisal – What it Means
The home appraisal is something that both the buyer and the seller should know about. In case you did not know, the home appraisal is more of a benefit for the buyer. Most buyer’s agent will include language in the contract stating that the transaction is contingent on the appraisal. If the appraisal comes back at the exact price of the contract, then no issue exists.
If the appraisal comes back at a number lower than the contract price, the door then opens for the buyer to typically take one of three steps:
1) Waive this contingency and proceed to settlement, or
2) Renegotiate the terms of this contract, or
3) Terminate this contract and receive a full refund of earnest money deposit.
Basically, the buyer is preparing themselves to be able to renegotiate the price of the house based on the outcome of the appraisal. The buyer’s mortgage lender will only give the buyer a loan for the amount of the appraisal. For example, if the contract price for the house is $200,000 and the appraisal comes back at $190,000, the bank will only give the buyer a loan for $190,000. More than likely, the buyer is not going to want to pay the already agreed price of $200,000 since they cannot get a loan for that amount.
As a seller, you should be prepared to renegotiate the price, especially if the price seems a little high in comparison to other recent sales. The lesson here is to price your property according to the current market conditions and this situation can be avoided. We all want to shoot for the stars when it comes to selling something, but certain things can get in the way such as the appraisal.
Please also remember that the seller cannot demand for the price to increase if the appraisal comes back higher than the contract price.
It is important to remember that the home appraisal is mostly going to benefit the buyer and exists to make the bank feel better about giving the buyer a loan.