What happens if the appraisal comes in for lower than the contract price?

In some parts of the country, it is becoming more and more difficult to say what a property is “worth” when talking in comparison to closed properties in the neighborhood. And looking at recent sales, or “comps”, is what an appraisal is all about.

But as some neighborhoods are more and more impacted by foreclosures or otherwise distressed sellers just trying to get out from under their mortgages, those comps may pull the values of surrounding homes down - on paper, anyway. And paper is where the loans are made.

In my area, Greensboro, NC and the towns around, this has not been so much of an issue. But what if you’re under contract to buy, which means you and the seller have agreed to the purchase price and other terms and the appraiser comes back with a number that is lower than that agreed upon price?

First of all, NO ONE likes it when this happens. Not the lender, the agents involved and certainly not the seller. But what to do? The findings can be challenged. Appraising is part art and part science. So, if there are good comps which may have been overlooked that justify the price, then a good appraiser can take those into consideration. Talk with your lender about what to do.

The seller can agree to take the lower price. Ouch. But if they don’t, you’re not obligated to purchase the property. Even if you are willing to proceed, the lender will have something to say about it.

The bottom line is that - emotional distress aside - you as a buyer are not at much risk by a low appraisal. And in the Greensboro area, it is not a common occurrence.

So, if it happens, breath deeply, talk to your lender and your agent, and move forward.