An appraisal is a professional opinion of your home’s value, and nearly all homebuyers will get one before settlement to ensure that they’re not overpaying for their new place. They’re also required if you’re obtaining a mortgage. When submitting an offer for a home, most buyers request an appraisal contingency, and we almost always recommend this. The appraisal contingency states that the home MUST appraise at or above the sale price. If the home should appraise for less, then the buyer may walk away from the sale with their deposit money intact.
Once the appraisal process is completed, usually a few weeks after going under contract, the buyer and their agent will review the appraisal details. If the home appraised at or above the sale price, that’s great – and that’s another hurdle completed towards settlement! If the home appraised for less than the agreed-upon sale price, however, then there are a couple of options. Often times, the sellers will reduce the sale price to match the appraised value. And sometimes, when this doesn’t happen, the buyers simply walk away from the deal, canceling the future sale.
In other situations, the buyer agrees to still pay the original sale price. In these cases, if the buyer is obtaining a mortgage, they must bridge the gap between the appraisal price and sale price in cash. In other words, they get their loan, let’s say it’s 90% and they’re putting 10% down, on the appraised value, and then they come out of pocket for the difference between the appraised value and sale price.
It can get a little confusing when this happens, and in a market of rapidly rising home prices like we’re in right now, it’s not terribly uncommon. Your experienced EveryHome agent will be right by your side throughout the entire process, and if you are curious about learning more, just give us a call at (215) 699-5555.