Before a lender approves your mortgage application, they must appraise the property and get an unbiased estimate of the home’s value. When the appraisal value and the agreed price do not match, it becomes a problem.
The bank will only fund a mortgage based on the appraised value to mitigate against the risk of loss if you default. In such a case, what happens, and is it the end of the deal? Here is what you need to know.
Understand your options
As a potential home buyer, all is not lost if there is a mismatch between the appraisal value and the purchase price. For instance, you can negotiate with the buyer to lower the sales price based on the appraisal. If they agree, well and good. The deal can proceed as intended.
You can also choose to pay the difference between the appraisal and the purchase price. This may require making a higher down payment to compensate for the variation. In some cases, you can request another appraisal, although it may come with additional costs or even be denied.
Alternatively, you can terminate the contract and walk out of the deal. Contingency clauses in your home-buying contract may include the option of canceling the deal without undesirable consequences if you do not obtain favorable financing.
Safeguard your legal and financial interests
Every situation is unique, and the best course of action may vary. Therefore, it helps to have an informed evaluation of the home-buying contract and the potential solutions if the purchase price is higher than the property’s appraised value.
Effectively navigating these challenges, alongside other intricacies of a real estate transaction, becomes markedly smoother with the necessary legal guidance. It helps ensure that your interests remain protected throughout the process, allowing for informed decision-making and strategic actions.