Potential home buyers who have recently found their dream home may offer far more than what the property is worth. Lenders have to protect themselves from overzealous buyers when financing real estate transactions.
One of the most common strategies for limiting the lender’s risk related to a pending transaction involves requiring an appraisal. Bringing in a professional to evaluate what the property is likely worth can protect the lender from financing more than the company can recoup in a foreclosure scenario.
How can you, a potential buyer, handle an appraisal gap if the appraiser says you offered more than the home is worth?
Negotiate with the seller
The real estate market is volatile. The seller may have unrealistic expectations based on sale prices in the area a year ago. An appraisal and a review of local prices in the last few months might convince them to adjust the sale price to align with the appraisal so that the transaction can move forward.
Cover the difference
If you have enough resources on hand, you can potentially just pay the difference between what the appraiser says the property is worth and what you offered on the property. However, this option may not work for those already stretched to the financial limit to buy their first home.
Some buyers will even find a new mortgage provider because the lender might select a different appraiser to give a higher home value. Many buyers will have better protection if they try to make offers that align with market value and reflect how much they can finance themselves.
Looking into different solutions when an issue derails your residential real estate transaction could help you close on the home of your dreams. Having legal guidance can help.