Most home loans are based on what an appraiser determines a house is worth, the loan will typically cover that amount. Thus, if a seller is listing their home at $1.5M, but the appraiser values the home at $1M, the maximum mortgage you will receive is $1M; you will have to figure out the other $500k. Given how hot the market has been, it’s become increasingly common for the listing price and the appraisal value to be significantly different. When this happens, the buyer has a few options available to them.
The most obvious option is to simply try and renegotiate the deal: the appraisal value isn’t likely to change significantly, so the sellers will continuously run into the same problem unless they’re willing to make some concessions. While sellers may be unwilling to drop their selling price to the actual appraisal value, the parties can meet in the middle (e.g., where there is a $40k discrepancy, seller drops their asking price by $20k and buyer finds an additional $20k to put into the deal).There are a myriad of negotiation tools available, and a skilled real estate agent will find a way to make the deal work if both parties want that outcome.
Alternatively, you could find a new lender and hope that their appraiser views the property differently. This is particularly easy if you have exceptionally high credit (over 800). It should be noted that this will cost time and money, so don’t pursue this option unless you are certain that this is the home you want. Another option is to simply request a new appraisal, but you’ll have to support your request with a “reconsideration of value” form. In this document, the person seeking reappraisal is tasked with providing evidence that the initial appraisal was incorrect. This evidence will take the form of comparable sales (“comps”), MLS printouts of those comps and seller concessions, and a narrative explaining why your evidence is superior to the evidence the initial appraiser relied on. It won’t be easy, but it may ultimately be worth the time invested if you succeed.
Finally, there are no rules against walking away from a deal if you can’t get a loan to cover the full price of the house, which is a certainty if the property is appraised for less than asking price.
At the Chernov Team we understand that knowledge is power, and knowledge of options when a wrench is thrown into a deal is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.