One Great Benefit When Your Appraisal is Lower Than the Purchase Price

Hi guys, this is Jim Duffy with Alcova Mortgage, and welcome to this expert network once again. Today I want to hit on a very important topic that I get asked a lot these days, which is what if my appraisal comes in lower than the purchase price, what are we going to do?

And it does happen sometimes because people are paying more than the asking price and therefore more than the appraised value to get the home to win the offer and get into your home. And it's just fairly common these days, not a hundred percent of the time, but it's more common than it ever was in the past that I've seen.

So here's the deal: the appraisal is simply a report for the lender and the home buyer. It's not public information, it's not part of the public records, not part of your title. No one will ever see the appraisal except you and I, and that's it.

And so the appraisal is simply a report that for the lenders, it says, what is this collateral really worth right now today? And that's how much we can lend against. That's how we know that our loan is not underwater and it's a safe loan to make. And that's the purpose of the appraisal.

So again, it's not public information, no one else will ever see it, but what they will see, what is public record is the purchase price. And here's the good news about that. Remember how appraisals are done. Appraisers go out and look at the past, recent past history. How many homes in this neighborhood sold for whatever value they sold for it.

How many homes sold in this neighborhood? What did they sell for, and are they similar square footage, similar age, similar type property? And that sets the comparable value, the comparable sale. Well, if you pay more than the appraised value, guess what you've just done, you've just set the new comparable sale for any homes going forward.

Meaning your home suddenly is inching up in value to meet the purchase price, not down in value to meet the appraised value. Let me say that one more time. This is important. So you've just kind of set the new comparable sale. Guess what: all your neighbors are going to love you for it. Because their home just went up in value because that's the new sales price.

And a lot of people worry about being underwater, meaning they paid more than the home was worth. Well, not if you just set the new comparable sale for your neighborhood. Not really, because very quickly the value just caught up to what you paid and your neighbors are now paying, right.

In the next couple of months, the new home buyers coming in are now paying as well. So I wouldn't worry about the appraisal, it's not public information. No one else will see it except you and the lender. And you've just set the new comp.

So I hope that helps. Thanks for watching. If I can help in any way, please feel free to reach out, but I hope you will watch more of the videos in this expert network. It's a wealth of information. I'm glad you found your way to this channel. And if any of us can help you, please reach out.

Have Mortgage Questions? We Can Help! Click Here