I’m Under Contract and the Property Didn’t Appraise. . . Now What?

Buyer education series for Crested Butte Real Estate

May 21, 2022: Article written by:  Heather Connor, Crested Butte REALTOR®

When home prices increase at a rapid rate, sometimes the appraised value will not increase as quickly.  When this happens we call this an appraisal gap.  

We often see this scenario In a seller’s market, when prices are on a steady and/or a faster-paced increase.  

Of course, appraisal gaps can happen for numerous reasons.  There may be a lack of general comparables, or if the property is very unique, there may be a lack of similar comparables.  Whatever the reason may be, how much control do you have as a buyer or seller in this scenario?

It’s worth stating that this only matters if the property is being purchased through a loan.  If the buyer is paying cash, it only affects them if the appraised value alters their decision to purchase. 

Now when a loan is involved, what are your options?  

Well, you can accept the appraiser’s valuation of the property and simply cure the difference.  This means that you would bring the additional funds to the table to cover the monetary difference between the loan amount and the appraised value.

Another option is that you could attempt to leverage the appraisal report to negotiate the price of the property.  This tactic is historically more successful when it is considered a buyer’s market.  In a seller’s market, the sellers usually have a stronger ability to reject negotiations and move on to the next buyer.

Another option is that you can cancel the contract by the termination date. 

Or you can also ask to dispute the valuation.  If you choose to dispute, be mindful of how long this process may take and if it will affect your ability to meet other dates and deadlines.  For example, could the delay affect dates such as closing, appraisal objection or any other dates and deadlines?  Make sure to discuss with your realtor and always get any extensions in writing via an executed contract. 

Be sure to look through the comparables closely and see if any seem like they should be removed and if any solid comparables are missing from the report.  You will want to make a logical claim and offer subject properties that back up the dispute.  

Once this process is complete, the appraisal value may or may not be adjusted. 

If the value is adjusted higher, then there is still a chance it will not be as high as the purchase price for the property.  If this is the case, then you usually will still have the option to terminate the contract, cure the difference or see if the sellers will adjust the purchase price.

If the valuation ends up being adjusted to the purchase price or higher then you have successfully disputed the valuation and can move forward to closing.

*We do our best to source factual data from the best resources out there. However, it’s always advised for consumers to perform their own due diligence, confirm accuracy and consult a legal or real estate professional. All information is deemed reliable but not guaranteed.

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by REALTOR®, Heather Connor

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