You've been searching for a home for months. You've submitted numerous offers and got outbid. You decide to get more aggressive and you submitted an above asking price offer. Your offer gets accepted and you make through all the major contingencies. Then the appraisal comes in...and it's short. What do you do?
In a hot real estate market, buyers and sellers are usually concerned about the appraisal, especially when there are offers over the asking price. When your appraisal comes in short, here are your three basic options:
Negotiate To The Appraised Price
Lets say you are purchasing a condo for $500,000. When the appraisal was completed, the appraiser valued the home at $480,000. If you're the buyer, it's probably in your best interest to negotiate the contract price down to $480,000. However, the seller doesn't have to agree to do do this.
Negotiating to the appraised price could work if the seller has no backup offer. If your the only offer in hand, you have some leverage in the situation. If the difference between the contract price and the appraised price is too big, a possible solution is to split the difference and make up the rest in cash. That could be a win-win for both buyer and seller.
Make Up The Difference In Cash
If the seller is not willing to negotiate to the appraised price, you'll have to make up the difference. Using the example above, the difference would be $20,000 ($500,000 - $480,000. If you really love the home, and you understand that you're overpaying, this option could work for you.
Although historical statistics have shown that real estate prices have increased over time in Hawaii, you should never assume that you'll home will appreciate in value (especially if you overpay for it).
Cancel The Transaction
If the seller won't negotiate to the appraised price and you don't want to make up the difference in cash, you'll probably have to cancel the transaction.