Low Appraisal… what’s Fair?

I’ll meet you halfway, sounds inherently fair, right? Well it’s not. At least from the sellers perspective.

Keep in mind that an appraisal is one person’s opinion of value, the primary purpose of which is to determine the maximum loan amount of a mortgage. I’ve personally seen 3 different appraisals of the same house at the same time come in at 3 different values. It happens. A lot.

So when a property appraises low, it’s completely unreasonable for the buyer to expect the seller to reduce the price to the appraised value. The same goes for offering to split the difference, which on the surface often “seems” fair because it theoretically represents some middle ground where each party has conceded equally, but that’s not really true. Setting this theoretical middle ground based on this appraisal is somewhat arbitrary. It’s the same reason we don’t use the seller’s original asking price to determine some halfway meeting point…. because it irrelevant!

So your deal is almost always DEAD. My experience has been that most buyers simply don’t have the extra cash down payment needed to make up a large shortfall on the banks appraisal and lower loan amount. If they do have the extra down payment, they’re hesitant because they value that appraisers opinion of value more than their own!

A seller concession on the sales price is often pragmatic but always unpleasant… feels like a mugging or pocket picking. But for the buyer, the only downside is that they have to put down more money and borrow less money, however, they’re not “losing” that money…. they’re still “gaining” because of the lower purchase price. From my perspective that’s a win for the buyer and a loss for me the seller…. not much inherently fair about it.