The Appraisal Result Most Buyers Celebrate Without Taking Full Advantage Of

When an appraisal comes in above the purchase price most buyers treat it as good news and move on. Judy Miller at Canopy Mortgage wants buyers and their agents to know that a high appraisal is not just reassuring news. It is a tool and most buyers never know to use it.

How the Gap Between Purchase Price and Appraised Value Creates Opportunity

Take a straightforward example. A buyer is purchasing a home for $470,000. The appraisal comes back at $480,000. That $10,000 gap between the contract price and the appraised value is not just confirmation that the buyer got a fair deal. It is leverage that can be restructured into real financial benefit if the buyer knows to ask for it.

Two Ways to Use That Gap

Option one is to amend the purchase price up to the appraised value of $480,000 and have the seller credit the buyer $10,000 at closing. The seller nets the same amount they were already going to receive. The buyer reduces their cash to close by $10,000. The monthly payment increases slightly on the higher loan amount but the impact on the monthly payment is minimal while the impact on the buyer’s out-of-pocket at closing is immediate and significant.

Option two produces a different and often more valuable outcome depending on the buyer’s situation. Use that same $10,000 seller credit to buy down the interest rate rather than reducing cash to close. A lower interest rate applied to a slightly higher loan amount can actually produce a lower monthly payment than what the buyer was originally quoted at the original purchase price and rate. The buyer is purchasing the same house with the same seller netting the same proceeds. The only thing that changed is how the transaction is structured and the result is a better monthly payment for the life of the loan.

Why Most Buyers Never Know to Ask

This restructuring opportunity is not something that comes up automatically in a standard transaction. Most appraisals that come in high get noted and the deal moves forward unchanged. The buyers who benefit from this are the ones who are working with a lender who knows to look for it and bring it to the table before the window closes.

A rate buydown or seller credit structured around a high appraisal can be the best financial component of the entire deal. It costs the seller nothing additional and produces meaningful benefit for the buyer either at the closing table or in the monthly payment or both.

DM Judy Miller the word options and she will walk through exactly how this could work for your specific scenario. Call 903-821-4723 or email [email protected].

Sources

ConsumerFinancialProtectionBureau.gov
FannieMae.com
MortgageNewsDaily.com
Investopedia.com
BankRate.com