A low home appraisal could cause a buyer to lose their deposit

When someone uses a loan to help them buy a home, the lender will send an appraiser to estimate the value of the home.

The lender won’t loan more than the amount of the appraisal.

If the appraisal amount is less than what the home buyer has offered, it could cause potential trouble.

For example, if the buyer’s accepted offer for the home is $300,000, and the appraisal amount is $280,000, the buyer will have to pay an additional $20,000 in cash out of pocket, in addition to the down payment and closing costs they were already planning to pay for.

If they don’t have the additional cash, they won’t be able to complete the transaction. They’ll lose the due diligence fee they paid, and depending on timing, possibly their earnest money deposit and any inspection or bank fees they’ve already incurred.

To complicate things further, appraisals are subjective. 3 different appraisers could come up with 3 very different appraisals for the same home.

BEFORE you make an offer on a home, make sure your realtor performs a comparative market analysis of recently sold comparable homes so you have an idea of what a property will appraise for. Have them show it to you and review it with you.

A realtor will not be able to guarantee that your home will appraise for what you offer, but they could give you a better feel for the overall risks.

Let me give you 3 examples that I often see when I perform an analysis.

One, there might be several nearby homes that sold for comparable amounts, or even a bit more. In this instance, the appraisal risk would be lower.

Two, there could be 3 or 4 recently sold homes that would support a buyers proposed offer amount, but 3 or 4 that are lower. It may seem to you that the 3 or 4 that support the offer amount are the most comparable, but there is no guarantee that the appraiser will select those properties.

Three, there could be only 1 or 2 recently sold homes that support the offer price, or maybe even none. In this situation, the risk is obviously higher. I’ve been in similar situations and had it work out, but I was really nervous about it.

The key is to match your financial situation and your appetite for bidding over the potential appraised the value with the results of the comparative market analysis.

If you don’t have flexibility with the amount of cash you can put down, it may be a good idea to avoid making an offer on a home that is not supported by multiple recently sold comparable homes.

I have a background in finance, so I normally go pretty in-depth when I do an analysis.

If you're looking to buy a home, I’d love to help you. If you’re looking to sell, this same sort of analysis will help you to set the right price, so I’d love to help you as well.

I primarily serve the areas around Winston-Salem, NC and all the way west to the area around Elkin. I’d love to hear from you.