Real estate prices in the Austin area have appreciated so much this year we are seeing more problems with appraisals coming in lower than the sales price.

An appraiser is looking backwards at sales prices that happened in the past. Buyers and sellers are looking at current market value, which in an appreciating market can be higher than the appraised value of a home.

The reason a low appraisal can be a problem is the mortgage company will only loan based on the lower of the sales price or appraised value.

Let’s look at what can happen if an appraisal on a home is determined to be lower than the sale price.

The buyer can terminate the contract

In most cases if a home does not appraise for the sales price the buyer has the right to terminate the contract. Even if the seller agrees to lower the sales price to the appraised value the buyer still has the right to cancel the contract all the way to the day of closing.

The seller can lower the sales price to the appraised value

When an appraisal comes in low a seller has to evaluate their chances of getting another offer that high and the chances a 2nd appraisal will come in higher. If not a seller may decide to lower the price to the appraised value.

Keep in mind an appraisal for a FHA loan sticks with the property for 6 months so you can’t sell your home to another buyer with a FHA loan for higher than the appraised value.

The buyer pays the difference between the appraisal and sales price

When a home has interest from many buyers the seller may refuse to reduce the sales price even if the appraised value is lower than the sales price. It is also possible for a seller to demand the buyer agree to verbiage in the contract requiring the buyer to pay for the difference between the sales price and appraised value in cash. That would keep the buyer from being able to terminate the contract due to a low appraisal.

The buyer and seller split the difference

Sometimes the buyer and seller will agree to a compromise where each side gives a little. The seller may reduce the sales price part of the way and the buyer may agree to increase their down payment to make the deal happen.

What can you do to keep from getting a low appraisal?

The most important thing you can do is to work with an experienced listing agent who can help you navigate the sale of your home. An experienced listing agent will be able to talk with you about the estimated appraised value and if it is worth taking the risk to accept a contract on a home with a value greater than the expected appraised value.

Your listing agent should also be able to provide information to the appraiser that will support the sales price value. Providing the appraiser with a list of comparable properties that support the value is important. It is also important to give the appraiser a list of every improvement you have made to the home along with the cost of each improvement. That will help the appraiser give your home as high a value as possible.

If you are considering selling your home let’s talk about a strategy to get you the best terms possible to avoid a problem with a low appraisal. For a free, no obligation consultation call or text Eric Peterson at (512) 791-7473 or send an email to

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