Could a Low Appraisal Doom Your Home Sale?

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Don't assume your sale will go through just because you've found a buyer.

If you are selling a home, you may assume that getting an offer from a buyer is the end of the story. You can accept the offer, the buyer will purchase your home, and you'll be free to move on to your next adventure.

The only problem is that a lot of potential things could go wrong even after you've accepted an offer. And one of the most common problems that could affect the ability of your sale to go through has to do with a home appraisal.

How could an appraisal affect your home sale?

Many buyers who make an offer to purchase a home will make that offer contingent upon certain conditions being fulfilled. And one of the most common contingencies is an appraisal contingency.

When an appraisal contingency is included in a sales contract, the buyer is agreeing to purchase your home as long as it appraises for the purchase price. This means a professional appraiser will have to come in, assess your home's condition, compare it to other similar properties that have sold recently, and determine the market value of your house.

Buyers may put an appraisal contingency in a contract because they are getting a mortgage, and their lender won't loan them more than a certain percentage of what the home is worth. Or they may put an appraisal contingency in the contract in order to make sure they don't end up overpaying even if they are paying cash for the home.

The problem is that sometimes the appraiser will decide that the home isn't actually worth as much as the buyer has offered to pay you for it. If the appraisal comes in too low, the buyer would generally have the option to walk away from the deal -- so the sale could fall through entirely. Or they might ask you to lower the price to the appraised amount, which would mean you might be stuck accepting less money than you want or risking losing the buyer entirely.

Unfortunately, with the current seller's market, many buyers are making high bids on homes in order to get their offers approved -- but homes are not necessarily appraising for these elevated amounts that buyers are offering. As a result, there's a real chance that you could end up faced with this type of situation -- especially if you accept a very high offer on your property.

What to do as a homeowner to reduce the risk of an appraisal problem

As a homeowner, there's not a lot you can do to avoid a sale falling apart if there is a low appraisal. While a buyer might decide to go through with a sale anyway, they may choose not to, or may be unable to do so because their mortgage lender won't give them a large enough loan.

While you want to make sure your house looks its best for the appraisal, things like cleaning and decluttering can only go so far. The biggest determining factors in assessing market value are things that can't easily change, such as the square footage or number of bedrooms.

You can, however, assess offers carefully. If you get multiple offers from buyers on your home and one doesn't include an appraisal contingency, it may make sense to choose that one -- even if it is a bit lower than another offer that does. By choosing an offer that doesn't hinge on a successful appraisal, you eliminate a potential obstacle that could affect the sale going through.

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