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The appraisal is ordered by the lender and paid for by the buyer either at the time of the appraisal or at settlement.  The purpose of the appraisal is to develop an opinion of the true market value of the property.  If the home does not appraise for the contract purchase price, the buyer can not get a loan for any amount higher than the appraised value.

 

Below are examples of what would happen if a home does not appraise.  For this example, the contract purchase price is $300,000 but the appraised value of the home is $290,000.

  1. The seller would sell the home at the appraised value of $290,000 because the buyer can’t get a loan for the contract purchase price of $300,000.
  2. The seller and buyer agree to meet in the middle of the contract purchase and appraised value and the home would sell for $295,000.  That means the buyer would have to bring $5,000 out of pocket to settlement to cover the $5,000 difference their loan won’t cover.  The seller would then have to either bring $5,000 out of pocket to settlement or receive $5,000 less of their original net of $300,000.
  3. The seller can’t or won’t sell the home for lower than the contract purchase price of $300,000 so the buyer pays the difference out of pocket of $10,000 that their loan won’t cover.
  4. The seller can’t/won’t sell the home for the appraised value and the buyer can’t/won’t purchase the home for the contract purchase price so the contract then becomes null and void.