Why the Home Appraisal Is So Important

The number one deal killer is a lowball appraisal. If the appraisal comes back with a home value that is significantly less than the purchase price, it can end up costing the seller thousands of dollars for three reasons:

  • First, lenders only lend based on the lower of the purchase price or the appraised value. This means that the buyer will have to come up with additional cash to cover the difference between the purchase price and the appraised value. This difference is not financeable and many buyers simply will not have the additional funds required to purchase the property at the offered price.
  • Second, even if financing is not an issue, many buyers will not want to purchase a home if the appraisal indicates that it is grossly overpriced. If the appraised value is significantly less than the purchase price, the buyer will most likely request a purchase price reduction and may pull out of the deal if the seller does not agree.
  • Third, before refusing the buyer's request for a purchase price reduction, the seller should consider how this lowball appraisal may impact future negotiations with other buyers. Will the seller be required to disclose to the new buyer the low appraisal? If the new buyer will require financing, will this new buyer be willing and able to cover the difference if the new appraisal also comes in much lower than the offered purchase price? If the lowball appraisal was for an FHA loan, this appraisal will stick for 6 months for any subsequent interested buyers who will also be financing the purchase through an FHA loan.

A low appraisal can have a reverberating negative impact on the existing transaction as well as any subsequent negotiations with other buyers. A buyer can simply move on to another property but the seller may be stuck with the fallout of the lowball appraisal.