How Can The Appraisal Ruin Your Closing?

🕒 Read Time: 3 Minutes

A bank appraisal is done by the buyer’s lender to verify that the property they are putting up hundreds of thousands of dollars to buy has enough value to secure the loan and that it is in acceptable condition to finance.  Here are some appraisal snags that can pop up along the way:

That Extra Kitchen In Your Basement:  You have a wood burning stove? Permits please!  My grandparents built their single family home in the 70’s… with 2 kitchens, but when it came time to sell a few years ago the buyer’s bank said we had to rip out the 2nd kitchen in order for the loan to be approved.  Luckily a very nice building inspector helped me sift through old boxes of permits at city hall and we found the original approved stamped plans showing a single family with 2 kitchens! Once we submitted that to the bank we were good to go.  But we have also had other situations where no permit was pulled, and we have seen everything from finished spaces needing to be completely ripped out to owners going through the process of applying for retroactive permits in order to close. We’ve seen closings delayed for months due to permit issues.

Peeling Paint, Missing Railings or Incomplete Work:  Certain loans come with requirements regarding the condition of the home, and if the appraiser sees anything that would raise a red flag they might require that repairs be made prior to closing.  Generally the appraiser has to come back to verify that the work has been done before you can close, this usually comes with an additional inspection fee. 

The Value Comes In Too Low:  A low appraisal value means that the fair market value is less than the agreed purchase price. No lender will loan you $200,000 for a home worth $175,000. All hope may not be lost, each situation is different and we have seen this handled many different ways. One way would be to renegotiate the purchase price, although if an appraisal contingency is not in the contract this will have to be agreed upon by all parties. Another solution, depending on the buyers financial situation, would be for the buyer to cover the appraisal gap- and pay the difference between appraisal and purchase price out of pocket. You could also request an appraisal review, but this will cost you additional time and will not guarantee you the results you are looking for.

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