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Low Appraisals When Selling Your Home

Is the buyer of your property getting a mortgage?  What if the appraisal for their mortgage comes in lower than their offered purchase price?

If your broker states that your property could potentially appraise for close or lower than the purchase price, you could ask the buyer to cover any gap in the appraised value in the Purchase and Sale Agreement (they would need to have the excess cash funds for this.).   

But, what if you don't have that negotiated into the sale of your home?  If the buyer's mortgage appraisal comes in low (which is common with current sale prices, especially in multiple offer situations,) then these are the following options:

  1. Buyer pays appraisal gap- You can ask the buyer to cover some, or all of the gap between the appraisal amount and the agreed upon purchase price. 
  2. Seller holds a private mortgage- If you have equity in your home, then you could hold a private mortgage to cover said appraisal gap. Sellers can often work in a balloon payment due for the full amount within a couple of years, or less.  Keep in mind, if the buyer is getting a bank mortgage, then your private mortgage would be a second position mortgage.
  3. Sell for appraised amount- If the buyer's offer to purchase your home is contingent upon them getting a certain mortgage and the appraisal is low, then they can likely get out of the sale contract.  It could be the right decision to move forward with the sale at the appraised value.
  4. Go to backup offer or put property back on market- Do you have a backup offer for your property, or have another buyer that was interested in the home?  You could let them know about the appraisal situation and choose to negotiate with them.  Hint: Backup offers almost always give a seller negotiating strength with their current buyer.  You could also choose to put your property back on the active market.

Bottom line: Keep appraisals in mind, especially if you are selling at or near the top of the current seller's market.  Are you thinking of selling your Maine property?  Give us a call at 207-890-1361.


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