So, you found your dream home, got your accepted offer, and everything is flowing along smoothly with you lender (hopefully it’s us). You’ve already picked out the new colors for the bathroom & kitchen, found all you need to know about schools in the area, and have already decorated the entire home in your mind. It’s a wonderful and exciting process purchasing a new home. You get a phone call from your lender, and they have some not-so-great news. The 3rd party appraisal came in with a value less than your accepted offer. No lending institution (that I know of) will lend more than the appraised value of the home, and clearly this can be an issue if the appraisal comes in low. Yikes!
So, what exactly does this mean? Do you lose the home? Can you still continue? Luckily, there are a few options available to a VA borrower:
- Buyer comes in with the difference
- Buyer pays the difference in value between the accepted offer and appraised value of the home (ie appraised value = $350,000 … accepted offer = $355,000 … borrower pays additional $5,000 to cover the difference)
- Renegotiate purchase price
- The purchase price can be renegotiated between seller and buyer to the appraised value of the home.
- Meet in the middle
- The seller can reduce the price a portion, and the buyer can come in with additional cash to meet in the middle.
- Both agents and lending partner could also contribute towards the difference in value (i.e. lowering commission or providing additional credits)
- The borrower can walk away
- The VA borrower is protected by a walk away’ clause in the VA Addendum to Contract.
- If the appraised value comes in low, and an acceptable compromise cannot be negotiated, the borrower can walk away without losing their escrow deposit.
While it’s not the greatest scenario, all is not lost if the appraised value comes in below your accepted offer. Everyone involved in the sale process wants the deal to close, and that’s why it’s important to work with real estate professionals that you can trust, knowing that they will be willing to work and negotiate in your best interests. We know how much you love that new paint color!