A home appraisal is an important part of the home buying process. This is the stage where lenders determine the amount of mortgage financing they are willing to provide. However, what happens when an appraisal value is too low for your offer on the property? Here’s how you can move forward in this situation.

What does an appraisal measure?

A home appraisal measures a property’s market value. An appraiser will examine factors such as property size, location, condition, and whether there have been any upgrades or renovations. These items contribute to the home’s overall value, and how much it is worth. An appraisal does not focus on specific aspects of a home’s condition or safety the way a home inspection does. For example, an appraiser will not be examining the home’s plumbing or heating systems, which a home inspector would. An appraiser is how lenders determine how much mortgage financing they are willing to loan. Generally, lenders will finance a mortgage up to the amount of the appraisal value. 

Can you still complete the purchase?

If your home appraisal comes back too low, this means the value of the property is lower than your offer on the sale. Unfortunately, this also means your lender will not finance a mortgage based on the full purchase price. However, this doesn’t necessarily mean you have to walk away from the property sale altogether. 

If the property you are buying is in good condition, many lenders will still agree to finance a mortgage based on the appraised value. If you can find a way to cover the remaining cost of the home, you can still close on the purchase. Of course, this can be an expensive option, depending on the size of the gap between the appraisal value and your offer. Buyers who have extra savings and have even planned for this possibility, however, might still be in good shape.

Can you walk away?

Depending on your offer on the property, you might have the option to walk away from the sale. If your offer includes a financing condition, you are protected. You can choose to step away from the sale. We recommend including this kind of condition in your offer, because it gives you an out if things don’t go as planned.

What if you submitted a firm offer?

Sometimes, buyers make firm offers on a property. This means they are committing to the sale with no conditions attached, which includes the results of a home appraisal. When buyers do this, it is to make themselves stand out from other buyers and attract the seller’s attention. After all, a “no conditions” offer makes the process much simpler for the seller. This was a popular move throughout the pandemic. 

Unfortunately, if you made a firm offer, a low home appraisal value can become an issue. You are now in a position where you have to follow through on the purchase whether or not you have the required financing to do so. If you have the ability to make up for the lack of mortgage financing, this may not be a huge problem. However, if you were not planning on this setback, you should reach out to your broker immediately to discuss next steps.

Contact your mortgage broker

A low home appraisal is not an ideal situation for a buyer, so it’s important to seek professional guidance from a broker! We can discuss your options moving forward, and what might be the best path to take. Whether you continue with the home purchase or not, you will have the knowledge you need to feel confident in your decision. 

If you have any questions about your mortgage, get in touch with me!