The residential real estate market has undergone incredible changes in the last few years. Prices have increased, while supply in the housing market remains relatively low. Supply chain issues and remote work further complicate an already stressful real estate market.
Now, many buyers find themselves in a difficult situation. They need to offer as much as they possibly can to be competitive. However, their lender may not agree that the house is actually worth that much money. Appraisals are a crucial part of the real estate buying process. They help lenders affirm that the property is truly worth what someone offers to pay for it. This prevents the lender from financing more than it can recoup if it must foreclose.
When the appraisal comes in lower than what you offered, you have an appraisal gap. There are four ways you can resolve this issue and still make it to closing as scheduled.
Cover the gap in cash
The gap represents risk that your lender may not willingly take when writing a mortgage. If you have the ability to use your own capital to cover that amount, then your pre-approved financing will likely be enough to get you through closing. Some people get quite creative and might sell other assets or borrow from friends or family if all they need are a few thousand dollars to close on the house of their dreams.
Renegotiate with the seller
If your appraisal comes in much under the asking price, then the chances are good that the same thing will occur if you back out and someone else buys the property instead. You might be able to work with the seller to adjust the sale price to an amount that your lender will approve for financing based on the appraisal.
Look for alternate financing
Some buyers with good credit scores may be able to find a better mortgage offer with a different lender. Applying for alternate financing will mean that there will be another appraisal, which could potentially be higher than the one you just had performed.
Challenge the appraisal
The final possible solution involves a careful review of the appraisal report. If you can show that there are problems are inconsistencies with it, the lender may discount that appraisal and have a second one performed. However, simple dissatisfaction won’t be grounds to challenge the appraisal. You will need concrete information, like clear inaccuracies in the report.
Understanding the risks involved in buying real estate can help you overcome even the most stressful situation.