Can a Seller Back Out after a Low Home Appraisal?

Can a Seller Back Out after a Low Home Appraisal?

Low appraisals have become the norm for the inflated real estate industry lately and for good reason. Bidding wars have caused home prices to inflate significantly, but the prices aren’t always warranted.

Many buyers covered the difference because they had faith the values would bounce back and the home would be a good investment, but not all buyers are willing or able to do this.

So, what can a seller do if the appraisal comes in low? It’s a tricky answer. Here’s why.

Purchase contracts are legally binding. Unless the seller has a contingency (which is rare), the buyer commits fraud, or the buyer breaches the contract, sellers can’t break a contract without consequences. But there are options.

 

Sellers Don’t Have to Lower the Price

Just because the appraisal comes in low doesn’t mean you have to accept that price as your sales price. If you and the buyer already entered a contract, that’s the price you agreed on. If the buyer can’t make up the difference between the appraised value and sales price, the buyer can back out, which then ends your contract.

 

You can Meet in the Middle

If the appraised value isn’t too different from the sales price, you might consider meeting in the middle. For example, you signed a sales contract for $200,000 but the appraisal came in at $180,000.

You can lower the price to $190,000. This means the buyer must bring an additional $10,000 to the table and you ‘eat’ $10,000. You aren’t obligated to do this, it’s just an option.

Have a Contract with a Kick-Out Clause

A sales contract with a kick-out clause allows you to continue marketing and showing the property. If by the kick-out clause date you find another buyer willing to pay the sales price despite the lower appraised value, you can ‘kick out’ the original buyer and accept the new offer.

The original buyer gets a certain amount of time to remove their contingencies and buy the home at the higher price or you can move on with the new buyer.

 

Appeal the Appraisal

It’s a long shot, but you can also appeal the appraisal. You can ask the appraiser for a reconsideration of value based on the information you found or information from your reputable real estate agent.

Appraisers rarely change their minds, but if it’s your only way to fix the situation, you could consider it.

 

Final Thoughts

Before signing a sales contract, make sure you’re working with a reputable real estate agent who understands local values. Signing a contract for a lot more than a home is worth might only lead to upset buyers and canceled contracts.

Working with a reputable real estate agent, though, you’ll have a feel for the industry and the area’s values, ensuring you get what you want for the property. If you find yourself in a contract with a low appraisal, you have options, but you’ll need proper representation to help you use them.

___________________________________________________

​​​Shenita D. Perritt, Realtor®, SFR® 

Bennett Realty Solutions 

Licensed in DC, MD, & VA 

Residential & Commercial Real Estate Services

Short Sales & Foreclosure Specialist

Office: 301-459-5040 |  Mobile: 202-664-2841

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Phone: 202-664-2841
Dated: July 1st 2022
Views: 6
About Shenita: Shenita is a licensed commercial and residential real estate professional in the District of Columbi...

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