Dealing With Low Appraisals When Buying a House in Austin

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Dealing with low appraisals when buying a house in Austin.

Dealing with low appraisals when buying a house in Austin.

 

WHAT IS AN APPRAISAL?

When you make an offer on a property in Austin, the next steps are to have a home inspection, which is an examination of the property’s condition and schedule a home appraisal, which determines the value of the building. So, if you made an offer on a house for $250,000, you would want the appraisal to come back at $250,000 or above. Anything lower than $250,000, and changes will have to be made. I’ll go over a few of your options in this article.

 

WHO SCHEDULES AND PAYS FOR AN APPRAISAL?

The lender typically schedules an appraisal for the buyer. Make sure you choose a reputable lender. It’s important to have an efficient communicator who stays on schedule and orders the appraisal pretty quickly after going under contract. Many big banks are not good at communicating with their clients, so ask your Realtor and friends and family for recommendations. It’s important, especially for first-time buyers, to be able to have as much communication with their lender as they need.

The buyer usually pays appraisals upfront, before closing. Remember closings usually take about 30-45 days. Your lender should go over your predicted closing costs total with you, and an appraisal will be accounted for in that amount. Typically, an appraisal is about $450 to $550. An investment property can be around $650, and large properties or properties with large acreage can be in the $800s.

 

WHAT HAPPENS IF THE HOUSE DOESN’T APPRAISE?

Your Options:

1. Renegotiate to the lower price. If there weren’t any prior agreements written in the contract concerning the appraisal outcome, you might be able to come to an agreement with the seller about lowering the price.

2. Back out under the financing clause or appraisal clause if there is one. You can back out of the contract. At this point, you would get your earnest money back (Usually 1-3% of the sales price). You would not get back your option money (can be anywhere from$100-$300+). You would also not get back the money you spent on an inspection and appraisal.

3. Pay the difference in cash. Let’s say you made an offer on a house for $250,000 and the appraisal came back at $245,000. You would need to come up with the difference, so, $5,000.  

4. Get a new appraisal for a higher amount (probably not your best option)

  • Getting a new appraisal wouldn’t necessarily be in your best interest unless the appraiser used old comps to get the appraisal number. And you don’t think they are reputable.
  • Sometimes it’s good to contact the appraiser if you believe the outcome isn’t right. Your agent will help you with this.
  • An appraiser typically compares your home to similar properties that have sold in the area.Your agent can also send supporting comps and any upgrades that support a higher price.

 

LET’S LOOK AT AN EXAMPLE….

Consider a $100,000 home. If a buyer has a 20% down payment and the lender agrees to finance 80%, then the maximum amount of the loan is 80% of the value of the home. If the house appraises for $100,000 then the lender will loan 80,000, so everything is good to go. If the house appraises for $90,000, the lender will still only loan up to 80% or in this case $72,000. The buyer either needs to come up with another $8,000 for the down payment or the seller needs to reduce the price.

 

APPRAISALS IN THE AUSTIN MARKET

A buyer should be concerned with a low appraisal if there are no supporting past sales in the area that validate their offer price. This can often happen if there is a multiple offer situation. A home’s sale price may be driven up because of competition. If your offer is way above the selling price, the seller may require you to add an appraisal contingency in your offer. This states that you agree to pay extra cash, a higher down payment if the appraisal comes in short.

But don’t think multiple offers always means you’ll be facing an appraisal issue. Sometimes a seller will purposely price their home low to increase their options and get the price they want. Always have your Realtor send you supporting comps for what has sold around the neighborhood. This will help you when deciding how to make an offer.

 

CONCLUSION:

There are a few questions to ask yourself when making an offer on a house with a lot of competition. How badly do you want this house? Are you emotionally tied to it? Is it the house of your dreams? Do you feel it is worth it? There are so many questions that need to be weighed by you under these circumstances. What is the difference between the appraisal and the purchase price, and are you willing to pay that out of pocket? If not, are you willing to walk away and not look back? At the end of the day, an appraisal is still just an opinion. Historically the value of a property is what a willing buyer wants to pay. It’s your choice!