In this article:
When you put your home on the market, things don’t always play out how you expect. You might struggle to find the right buyer, you may discover your home needs more maintenance than you thought, you could discover your home’s not quite worth what you hoped. If the latter’s the case, you’ll want to know if you can sell for more than the appraised value.
With home values skyrocketing across the country, you might expect your home’s value to be at a premium. Home appraisals, however, don’t always match what you’d like to get for your house. That’s not necessarily a deal breaker, though. You can sell a home for more than the appraised value — but it’s not ideal because it can cause financial problems for the buyer.
In this piece, we’ll discuss what happens if your home’s appraised value comes in below your desired selling price and what you can do to maximize your profit.
Reminder: What’s an appraisal?
A home appraisal is an official examination of your home by a licensed appraiser that approximates the value of your home. The appraiser takes into consideration the area your home is in, the condition of the home, comparable sales in the area, as well as any of the home’s amenities or special features. All of these factors contribute to an official appraisal value that not only estimates what your property is worth, but indicates the amount a lender will allow a buyer to borrow in order to purchase the property.
That last point is important. If a buyer has to get a mortgage, a low appraisal can cause significant problems.
How does the appraisal impact a mortgage?
A buyer’s lender will base a home loan on the appraisal’s estimate of a home’s fair market value. Even if you’ve already agreed on a purchase price and accepted an offer, if the buyer’s lender sees a lower appraisal amount, it could pull the loan. More likely, the bank will adjust the loan based on the loan-to-value (LTV) ratio, meaning the buyer will have to make up the difference in the appraised value and the purchase price if they want to buy the home.
The lender’s primary interest isn’t helping the buyer buy a home — it’s protecting their investment. As such, the appraisal is a very important point in the home sale process. Still, a low appraisal doesn’t mean it’s impossible to get your desired purchase price.
How to sell a home for more than the appraised value
So, what can you do if the appraisal comes in below your expected sale price? You have a few avenues to still sell your home for more than the appraised value.
Avoid a bad appraisal in the first place
Maybe it goes without saying, but before you even go through the appraisal process, make sure you’ve done everything you can to get the best appraisal possible. Some good tips:
- Clean your home and make sure it’s spotless.
- Make sure features like paint, handrails, doorknobs, plumbing, and railings are all in excellent condition.
- Make any known, needed repairs before an appraiser arrives.
- Document renovations or improvements you’ve made with pictures and receipts of the work done and permits obtained.
These are simple ways to help your home reach its maximum value in an appraisal.
Watch out for appraisal contingencies
Buyers justifiably want to protect their investment. Many buyers prefer to write in an appraisal contingency to the purchase contract, allowing them to walk away without losing money if the home appraisal comes in low.
In a seller’s market, you will likely have multiple offers. If you’re concerned about a low appraisal, don’t accept any offers with appraisal contingencies. Most buyers are willing to waive contingencies to make their offer more competitive, and it’s a good sign that they’re willing and able to meet a higher purchase price. But you can’t sell for more than the appraised value if the appraisal triggers a contingency.
Go with an all-cash buyer
One way to avoid an appraisal contingency is by selling to an all-cash buyer. Any buyer that doesn’t need a loan can skip an appraisal entirely. So, as a seller, if you’re fielding multiple offers but feel concerned about a difference between your sale price and an appraisal, going with an all-cash or higher cash offer could avoid the appraisal process.
Because homes are expensive purchases, you may not get an all-cash offer — but if you do, they’re worth great consideration.
Get another appraisal
Sellers may dispute appraisals. Maybe you didn’t do everything you could to prepare your home for the appraisal and you feel the appraiser made a mistake. Either you can pay for the original appraiser to take a second look, or bring in someone to give a second opinion. This is a subjective process, after all. The lender may not agree to a second, higher appraisal but it gives the buyer more ground to stand on to meet a higher purchase price.
To give yourself the best chance at a better appraisal, you should do a little research on your own. Confirm that the appraiser reported the correct square footage, number of bedrooms and bathrooms, and that they didn’t overlook any amenities or features of the home. Did they use the most recent comparable home sales data available in the area or was it dated? Did they take into account that you have a two-car garage while other homes in the area only have a one-car garage?
Review the appraisal report, preferably with a real estate agent, and make sure that the next appraisal doesn’t miss any value-adding features of your home.
As we’ve stated before, a lower appraisal than the agreed purchase price doesn’t always mean the lender won’t approve the loan. The buyer will just have to pony up a little more money to meet new loan requirements. If you’re motivated to sell, you can bring the price down a little and still sell above the appraised value.
Let’s say you agreed to sell for $750,000 but the home was only appraised for $675,000. Coming down to $700,000 will likely satisfy both the buyer and their lender while ensuring you still come out ahead.
Hold your ground
The housing market has been, frankly, bonkers in the wake of the pandemic. Demand significantly outstrips supply, ensuring a seller’s market will likely persist through 2022. Despite a low appraisal, there’s a good chance you’ll find a buyer who is willing and able to meet your purchase price, or that you’ll get a better appraisal if you simply wait a few months.
You know what your timeline is, and how much you want to sell your house for. If you’re not in a rush, feel free to dig in your heels. Of course, you shouldn’t expect to sell a $650,000 appraised house for $1.5 million, but don’t be afraid to hold your ground until the right buyer comes along. Some buyers may balk and you might keep your home on the market a little longer than you expected, but if time is not a factor, patience could pay off.
In a seller’s market, it’s much easier to sell your home for more than the appraised value. There are more buyers looking for fewer homes, and some of them will come with all-cash offers that don’t require an appraisal. Depending on how motivated you are to sell, you can be picky about how much you sell your home for, even if home appraisers don’t love it as much as you do.