There are many last-minute issues that could arise and complicate a residential real estate transaction. The buyer could lose their job. A storm could blow through and severely damage the property. There could also be concerns about the price offered for the property.
Mortgage lenders typically require appraisals to ensure that the value of the property aligns with the amount that they provide in financing. When the appraisal comes back lower than the buyer’s sale price, the resulting appraisal gap can complicate the pending transaction. There are a variety of solutions available in an appraisal gap scenario, including the three options below.
Renegotiating with the seller
An appraisal gap may be an indicator that there were issues with the property that the buyer didn’t initially identify or that the market has softened since they made their offer. In either case, the seller may have to adjust their expectations based on what they can likely ask for the property on the open market. Sellers may sometimes agree to reduce the sale price after an appraisal comes in low or cover the cost of repairs that could alter the appraised value of the property.
Looking for unconventional funding sources
Typically, a mortgage company is unlikely to underwrite the full sale price of a property when there is an appraisal gap. The company might agree to finance up to the appraised value of the property. In such scenarios, buyers may be able to find alternative means of covering the difference between those two amounts. For example, now they might be able to sell a few pieces of personal property, such as a spare vehicle. They might be able to borrow from family members. Creative financial solutions can help people close an appraisal gap and move forward with the purchase.
Requesting a second appraisal
Sometimes, a buyer may be able to request and pay for a second appraisal. If a subsequent appraisal returns a higher value for the property, they may be able to convince the lender to finance the transaction. They may also want to consider communicating with an alternative mortgage lender. They could potentially secure pre-approval from a different company and have an appraisal done that better aligns with the amount offered for the property.
In scenarios where buyers cannot effectively overcome an appraisal gap, they may have to cancel a closing. Having support during residential real estate transactions can help buyers navigate complex issues that can complicate the process. Legal assistance makes it easier for buyers to protect themselves when issues arise and if transactions suddenly fall apart.
