Crossing (Appraisal) Bridges When You Come to Them
With housing prices now rising in most markets nationally, the risk of homes not appraising is generally receding.
But, the risk still isn’t zero.
Even so, it’s usually unwise — even if it’s possible — for the Buyer and Seller to address in the Purchase Agreement or Financing Addendum what happens if the home appraises low (that is, what happens beyond the Financing Contingency failing).
Custom Clauses
There are two reasons for that:
One. It’s a complicated provision to negotiate and draft (vs. the default boilerplate language); and
Two. A Seller who pushes too hard for such a clause — and it’s always the Seller who pushes for it — is telegraphing their concern that their home is overpriced.
That’s apt to spook the Buyer and undermine the rest of the negotiation.
Can you say, “tail wagging the dog?”
Appraised vs. Fair Market Value
Savvy professionals know that even well-priced homes can flunk appraisal, due to sloppy or inexperienced appraisers, difficult Comp’s (“Comparable Sold Properties”), and other appraisal vagaries.
However, pushing the issue too hard in negotiation is still a tactical “no-no”, in all but the most lopsided deals (like, when the Seller is in multiple offers with a gazillion choices).
P.S.: So, what happens if the home appraises low?
The usual outcome is that the deal gets put back together, albeit at a lower price closer to (if not at) the appraised value.
