What if the appraisal comes back low? We have some suggestions to help you relax.

What Is A Home Appraisal?

A bank appraisal will be required if you're applying for a mortgage to buy a house.

Why? Your lending partner will be very invested in your purchase. For example, if you put down 5%, the lender will bring 95% to closing. This is a lot of money!

Your lender will need to research your home to ensure it is a sound investment. Based on comparable market data, a bank will send an appraiser out to assess the property's fair market value.

Why Would A Home Appraisal Come In Low?

Sometimes, the appraised price is lower than the agreed-upon purchase cost. Let's For example, let's suppose you offer $390,000. After signing the purchase agreement and moving forward with financing, the bank appraiser calculates that the property is worth only $380,000. This is why?

There are several reasons:

• Bidding wars

  When there are many bids for a property, it can cause the value to go beyond what the appraiser has determined. Appraisers use historical data to support your purchase price. They also need to compare comparable houses that have recently sold.

• Bad Timing

  Another culprit is seasonal peaks. Low appraisals are most common in New England's early spring. Buyers can get out of winter slumps thanks to the nice weather. Also, there is plenty of inventory and activity that can push prices up. As a result, appraisers who must draw from winter sales to justify current values or seasonal pricing spikes find it difficult.

• Poor Appraiser

  An appraisal that was not completed correctly could also cause a low appraisal.

  Most residential transactions don't allow you to choose your appraiser because it would be a conflict of interests for the buyer. However, if an appraiser is unfamiliar with the job or not from the area, they might make mistakes and give you an incorrect opinion.

• No Comps

  To build a value case, appraisers use historical data and comparable houses. In some cases, however, the comps are not sufficient to justify the pricing. These cases will require the appraiser to be conservative.

You Have Options If The Appraisal Falls Below The Purchase Price.

Low appraisals are bad news. The lender will only lend up to the appraised price, which is higher than your agreed-upon purchase cost. Referring to the earlier example, who pays the $10,000 difference between your offer of $390,000.000 and the appraisal at $380,000?

You can do a few things. Examine the appraisal carefully. Are there any obvious issues? Is there anything the appraiser missed, or did he overlook a perfect comp? Talk to your lender to find out if you can get a second opinion or re-examine the report. If things seem really out of control, you might want to get a new appraisal.

You have other options if ordering a new appraisal is not the best way forward.

Ask For A Price Cut

Are sellers motivated? It is possible to get the sellers to lower the price to the appraised value. You might be able, based on the appraisal report findings, to negotiate a lower sale price. This is the best-case scenario.

You may be able to negotiate a price reduction with them if they refuse to drop it all the way.

Find The Money

If the seller isn't motivated or has many backup offers, they might tell you to take it. You will need to decide whether you are willing to pay more money to make up the difference. The low appraisal can be offset by putting more money down.

Reconfigure Your Financing

What happens if you don't have enough money? You might be able to collaborate with your lender to create a new program that allows you to make some extra cash. Instead of putting down the full amount, you could put down less and then use the additional cushion to bridge the appraisal price and purchase price gap.

If everything fails, you can cancel the transaction if there is a financing contingency.