A Home Did Not Appraise for Purchase Price?

WHAT HAPPENS WHEN MY HOUSE DID NOT APPRAISE FOR THE PURCHASE PRICE IN ILLINOIS?

The buyer and seller sign a Multi-Board Residential Contract 7.0 (“real estate contract”) and they set-up a closing date.  Generally, there is no provision in the real estate contract dealing with the home appraising for value.  Real estate attorneys almost always amend the real estate contract during the attorney-review period and request the following type of language (or similar language)

The contract shall be contingent on the property appraising at or above the contract purchase price by the Buyer’s lender’s appraiser.

The real estate attorney for the buyer is protecting his or her client or clients in case the real estate in question does not appraise at or above the contract price. Often, the mortgage company hires a licensed appraiser and there is a low-appraisal, which is well-below the proposed purchase price.

BUYER AND SELLER OUTCOMES WHEN A PROPERTY DOES NOT APPRAISE FOR VALUE IN NAPERVILLE, YORKVILLE, AND OR SHOREWOOD, ILLINOIS?

The first option is to cancel the contract because the property did not appraise for value. This option is a strong option when the buyer’s real estate attorney has timely prepared an attorney-review letter asking for an amendment in the real estate contract. The attorney-review period must be submitted within five (5) business days after acceptance of the contract. 

The second option is the Buyer and Seller negotiate and come to agreement on a lessened purchase price. For example, the Buyer agrees to put another $25,000 as a down payment. Thus, the buyer purchases the house at $375,000 instead of $350,000. This also will require the seller to reduce their sales price by $25,000. This scenario is increasingly unlikely the greater the difference between the appraised value and the purchase price (under the real estate contract). After all, the Buyer and Seller are making a house purchase and an investment (and a liability). Despite the Buyer and Seller liking one another, the purchase of a home is a major business decision. Business decisions must be made without regard for one’s feelings towards the other party. 

The third option is to request another appraisal to determine whether the first appraisal is accurate. Often, a seller will be offended when their house does not appraise for value. Seller(s) are making a business decision, but it also is one’s home, which is personal to the Seller(s).  An additional appraisal or two may be able to ignore one appraisal because it is faulty.  Generally, the mortgage company may average the different appraisals to determine if a revised deal is possible.

In summary, an appraisal value contingency clause is highly recommended in Multi-Residential Real Estate Contract 7.0 in the State of Illinois. The appraisal value contingency will enable a buyer to terminate a contract where their buyer’s financing is impossible or simply not in their best interests. Otherwise, the buyers will be faced with losing their earnest money or a default of the residential real estate contract. Gateville Law Firm assist buyers and sellers of residential real estate with their legal options when buyers and sellers of residential real estate face real consequences from their residential real estate contracts.