How to Dodge the Low Appraisal Bullet When Buying Your North Carolina Dream Home

A low home appraisal is a serious risk for home buyers in North Carolina

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

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

If the appraisal amount is less than the contract price of the home, it could be a potential issue that could kill the deal and cost the home buyer a lot of money.

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 (which can be substantial), and depending on timing, possibly their earnest money deposit and any inspection costs or bank fees they’ve already incurred.

To complicate things further, the risk is somewhat out of a buyer’s control – 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 you or 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 comparable, nearby homes that sold for a similar amount, or even a bit more. In this instance, the appraisal risk would be lower.

Two, there could be 3 or 4 recently sold comparable homes that would support a buyer’s 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 feel the same way and 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 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 value with the results of the comparative market analysis.

If you have the means to cover a shortfall if the appraisal amount is less than the offer for the home, and you are comfortable with doing it, then you may be comfortable bidding on a home with less support from recent comparably sold homes.

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.

You may also want to focus on homes that have been on the market for at least a week or more, where you will likely be in a less competitive bidding situation.