Agent in the Creek

When an agreement to buy and sell real estate is made between a buyer and seller, there are usually several contingencies that have to be met before the sale can close. One of those contingencies is that the appraised value of the property is at or above the agreed sales price. Nine times out of ten – or should I say 39 times out of 40 in my case – the appraisal comes in a few dollars more than sales price and everyone is happy. But what if it doesn’t?

In today’s real estate market, where prices have been declining for the past few years, low appraisals are becoming more and more common. I’ve heard about them from other agents in my office, but until last week I had never experienced the “excitement” of a low appraisal firsthand.

Everything in real estate is negotiable – even the treatment of a low appraisal. If you read the South Carolina Realtors® sales contract, it says this:

This agreement is contingent on the lot or parcel with building and improvements thereon, if any, appraising, according to the lender’s appraisal or other appraisal as agreed, for the selling price or more; if the lot or parcel with building and improvements thereon appraises for less than the selling price, the seller may elect to sell for the appraised value. In such case, the buyer agrees to proceed with the consummation of this sale at the reduced price. However, if the seller does not agree to sell at the appraised value, the Buyer shall have the option of proceeding with the consummation of the agreement without regard to the amount of the appraised valuation, or terminate the agreement without penalty.

I’ve always thought of this paragraph as something that protects the buyer. Most people think the paragraph says that if the property doesn’t appraise for the contract sales price or more, the buyer doesn’t have to buy it. However, what that paragraph actually says is that the buyer is obligated to buy the property if it appraises for at least the amount of the sales price AND if the appraisal comes in low but the seller agrees to lower the sales price to the appraised value.

Last week an appraisal came in low for a property one of my clients is purchasing. When my client found out the appraisal was low ($3900 short), the house lost its appeal to her. She told me she didn’t want the house anymore, that it wasn’t as nice as she thought it was and she wanted out of the contract. (NOT THE REACTION I HAD EXPECTED!) I reminded her that when we wrote the contract she was very excited about the house and thought it was the perfect house for her. She said it wasn’t perfect anymore.

We worked through it, but here’s the thing: when we create an offer to purchase real estate, I always do what I can to help my clients get the property they want for the least amount of money possible. However, think about this: a low appraisal means we get the property for even LESS money than we were willing to spend. That’s a GOOD thing, right?