An appraisal is a documented analysis of the value estimation for the home. A licensed appraiser will by assigned by the lender to prepare the home appraisal report. It recognizes fair market value based on the recent sales in the neighborhood, and is required for a mortgage loan approval to ensure the value of the property. Homes sold in the last 90 days will provide the greatest weight in the sales comparison approach.
So what happens when the appraisal is less than the purchase price agreed upon?
If your home appraises for an amount that is lower than your purchase price there are 3 options
- Negotiate a new purchase price that take into account the appraised value
- Buyer increase their downpayment to cover the difference
- Buyer may choose to cancel home purchase contract through the appraisal contingency
Appraisal contingencies are also exercised to exit or renegotiate contracts when an appraiser identifies repairs that are required to complete the appraisal.