Unless you are a cash buyer, you will be taking out a loan and the bank will require an appraisal to make sure the home is worth what you are paying for it (or that they aren’t loaning you more money than the collateral is worth – most banks hate that; the unscrupulous ones don’t).
It is possible that the home will not appraise out where it should – perhaps you are overpaying, or the market prices are dropping. And with more rigorous mortgage standards that seem to be appearing daily, and increased concerns about the industry and its lending practices, banks are becoming much stricter, and more careful.
What can happen?
- You may be able to get a second opinion, if the bank allows it and they will accept it.
- The bank may review the file more carefully (secondary review)
- You can put more money down, thus decreasing the amount of the loan
- You can re-negotiate the sales price with the seller
- You won’t be approved for the loan and the deal will fall apart.
One way to avoid this is to make sure, when deciding on an offer, or the counter-offer that you will accept, is that you and your REALTOR (R) do a thorough due diligence and check on the comparable homes. If you are paying more than the market value you very likely will run into a problem, unless you are making a big downpayment. You should also understand what prices are doing in your particular market – your agent should have this information.
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