It finally happened. You found your dream home and the seller accepted your offer. Everything is moving forward. You hired an inspector to look over the property and make sure there are no concerns. You even have ideas for where furniture will go and how you will use each room.
Then it happens. You were worried there could be an issue, and here it is. You call up the bank to get an appraisal and the banks claims that the home is worth much less than the agreed upon purchase price.
What should you do? Is this concerning? How could this affect the deal?
The answer depends on a variety of factors. First, if you need a mortgage to help finance the home as most home buyers do the appraisal could pose a problem. It is standard practice for a mortgage provider to use an appraised value to justify the loan amount.
Even if this is this case, there are options that can help to better ensure the deal still moves forward. Those in this situation can consider the following remedies:
Remedy option #1: Take a step back.
The buyer and seller could return to negotiations with this new information and see if they can agree upon a different price. Ideally, real estate contracts have provisions to protect the buyer in this situation.
It is important to take this opportunity to remind both parties that real estate contracts do not need to be boilerplate documents. You can have your own agreement tailored to your situation. If the other party provides the document, you can have that one reviewed and edited to better ensure you are protected during the transaction.
Remedy option #2: Negotiate with the lender.
The buyer could make a case to the mortgage provider that they can afford a higher price.
Remedy option #3: Pay the gap.
If the gap between the purchase price and appraised value is manageable, the buyer could pay the difference and mortgage the remaining amount.
These are just a few options for those who are in this situation. An attorney experienced in real estate law issues like this can review your situation and provide additional guidance.