What Happens If a Salt Lake County Home Appraises Below the Contract Price?

If the appraisal comes in below the price in your contract, the lender will base the loan on the appraised value, not the price you agreed to. That leaves a gap. You, the seller or both of you have to close it, or the contract can change or end, depending on what your appraisal contingency says and when its deadline falls.

Charisse Walker is a real estate agent with Chalker Properties Group in Salt Lake and Davis County, Utah, and a licensed mortgage lender. She walks buyers through this moment before it happens, because the buyers who handle it well are the ones who already know their options. On a deal where she is your agent, your loan belongs to your own lender and she does not act as your loan officer.

A low appraisal is common enough that you should plan for it, and it rarely means the deal is over. This article covers what an appraisal is, your options when one comes in low, the mistakes to avoid and a typical example.

An appraisal is an opinion of value from a licensed appraiser, ordered through your lender. The lender uses it to decide how much it is willing to lend against the property. A lender will not lend more than a set percentage of the lower of two numbers: the purchase price or the appraised value.

The appraiser looks at the home, measures it, notes its condition and compares it to recent nearby sales of similar homes. Those sales are called comparables. The appraiser then states a value based on what the comparables show.

Two things are worth knowing:

• The appraisal is for the lender's protection. It is not a home inspection and it does not tell you whether the roof is sound.
• The appraiser works from sales that have already closed. In a market where prices are moving, the closed sales can lag behind what buyers are paying today.

If you have not read the guide on what to expect after your offer is accepted in Utah, it shows where the appraisal fits among the other deadlines.

You usually have four paths. Which ones are open to you depends on your contract, your loan and how much cash you have.

1. Ask the seller to lower the price. The appraisal is a piece of evidence the seller did not have before. Some sellers agree to meet the appraised value, or to split the difference.
2. Pay the difference in cash. If the price is $10,000 over the appraised value, you can bring $10,000 more to closing on top of your down payment. That money does not build equity on paper the day you close, so decide this one with care.
3. Challenge the appraisal. Your lender can send a reconsideration of value request with comparable sales the appraiser did not use, or with a factual error such as the wrong square footage or a missing finished room. This works when you have solid evidence, not when you simply disagree.
4. Walk away. If your contract has a working appraisal contingency and the deadline has not passed, you may be able to cancel and recover your earnest money. Read the exact wording first, and ask your agent to confirm the dates.

Many deals end up with a combination: a small price reduction from the seller and some extra cash from the buyer. A lender decides what it will accept, so keep it in the loop on any change.

An appraisal contingency is a clause in the contract that lets you renegotiate or cancel if the home does not appraise at the price. It only helps you while it is in force. If you let the deadline pass without acting, you may lose the right to cancel over the appraisal, and your earnest money could be at risk.

Some buyers choose to shorten or waive the contingency to make an offer more attractive. That is a real tradeoff and worth reading in full. The article on waiving the appraisal contingency in Salt Lake County covers when buyers do it and what it can cost.

If you kept the contingency, calendar the deadline the day you sign. The contract controls the dates, so your agent should confirm them with you in writing.

These are the ones that cost buyers money or time:

• Waiting. The clock keeps running while you think. Call your agent and your lender the day you learn of the value.
• Agreeing to pay the gap without checking the cash. Make sure the extra money fits alongside your closing costs and your reserves. Your lender can tell you what it needs to see.
• Challenging with opinions. A reconsideration request needs comparable sales and facts. Listing prices and online estimates do not count as evidence.
• Skipping the written amendment. Any price change, credit or extension needs to be in a signed amendment. A phone call is not a contract change.
• Moving money around. Large deposits and transfers can trigger questions from underwriting. Talk to your lender before you shift funds to cover a gap.

You can also ask who else has a stake. If the seller has other offers behind yours, they may be less flexible. If the home has been on the market a while, they may be more so. The piece on winning a multiple-offer situation in Utah shows how that pressure works from the buyer side.

This is a typical example, not a description of a particular client. A buyer in Salt Lake County agrees to a purchase price. A few days later the lender tells them the appraisal came in $8,000 under the contract price.

The buyer's agent pulls the sales the appraiser used and looks for ones that were left out, such as a recent sale of a similar home a few streets away. She also checks the appraisal for facts that could be wrong, such as a finished area counted as unfinished. She sends what she finds to the lender for review.

Suppose the appraiser holds the number. The buyer then asks the seller for a price reduction. The seller counters at half of the gap. The buyer agrees to cover the other half in cash, and the parties sign an amendment before the appraisal contingency deadline. Nobody gets everything they wanted, and the deal closes.

Outcomes like this depend on the contract, the market and the people involved. They are possible because the buyer acted inside the contingency window and put every change in writing.

You cannot control what an appraiser concludes, but you can decide in advance what you would do about it.

1. Look at the comparable sales yourself. Ask your agent to walk through the recent closed sales that support the price you are about to offer. If the support is thin, you will know the risk going in.
2. Know your cash cushion. Decide before you offer how much extra cash you would be willing to put in if the appraisal fell short, and tell your agent that number.
3. Read the appraisal clause. Know what it lets you do and by what date.
4. Ask your lender how it handles reconsiderations. Some have a clear process, and your lender can explain the timeline.
5. Keep your expectations about unique homes realistic. A home with an unusual layout, a large addition or few similar sales nearby is harder to appraise, and the risk of a gap rises.

Those steps take an hour and can spare you a rushed decision with a deadline a few days away.

Does a low appraisal mean I overpaid?

Not necessarily. It means the appraiser's comparables supported a lower number at that moment. Buyers and appraisers weigh recent sales differently, and a gap can reflect timing as much as value.

Can the seller refuse to lower the price?

Yes. The seller is not required to accept a lower price. Your options then are to cover the gap, challenge the appraisal or use your contingency if you still have it.

Who pays for the appraisal?

The buyer usually pays the appraisal fee as part of the loan costs, though the contract can allocate it differently. Ask your lender when it is due.

Can I order a second appraisal?

Lenders generally order the appraisal and decide whether to accept another one. A reconsideration of value through the lender is the more common route.

Will a low appraisal affect my interest rate?

The appraisal affects the loan amount and loan-to-value ratio, which can change pricing or mortgage insurance. Ask your lender to run the numbers on the revised terms.

Charisse Walker is a real estate agent with Chalker Properties Group in Salt Lake and Davis County, Utah, and a licensed mortgage lender. When she is your agent, she reviews the comparable sales with you before you offer, tracks your contingency dates and keeps every change in writing. The loan stays with your lender, and she can tell you which questions to put to them.

If you are early in the process, the home buying page lays out the steps. The Salt Lake City area page compares neighborhoods on commute and price, and the process page explains how Charisse works with clients.

Thinking about an offer in Salt Lake County? Tell Charisse what you are looking at and she will go through the numbers with you.