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Understanding the Appraisal

If the buyer is financing their purchase, their lender will likely need to order an appraisal to determine the fair market value of the home. Their lender wants to make sure that the loan amount is in line with the actual value of the property in case of loan default.

This is why it is key to price your home within the range that the comps support. If a buyer offers much more than the property is worth, they may not be able to secure financing for the full value of the home.

To determine the value of the home, an appraiser will visit the property and review comparable sales in the area. Based on this, they will assign a value to the home.

If the appraisal comes in lower than the purchase price, the buyer has a few options:

  • Pay the difference in cash
  • Renegotiate the contract price with the seller to the lower appraised price
  • Contest the appraisal
  • Restructure the loan with their lender
  • Cancel the contract (pursuant to the mortgage contingency)

In the event of a low appraisal, your real estate team (agent & attorney) will work with you to determine the best course of action.

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