Home appraisal comes in below your price: Now what?

Housing market trends bode well for sellers this spring, but some may encounter hurdles even after they land a buyer.

Rising home values and a lack of inventory in many markets could set them up to receive competing offers, but that dynamic could also increase the likelihood that the appraised value of the home could fall short of the agreed upon sale price, potentially scuttling the deal. ... Subscribe or log in to read more

Housing market trends bode well for sellers this spring, but some may encounter hurdles even after they land a buyer.

Rising home values and a lack of inventory in many markets could set them up to receive competing offers, but that dynamic could also increase the likelihood that the appraised value of the home could fall short of the agreed upon sale price, potentially scuttling the deal.

Banks rely on appraisals to determine whether the size of a mortgage being sought by a homebuyer is justified by the market value of the home theyre looking to buy. Lenders do this to ensure that they will be able to recover their funds in the event they have to sell the home should the borrower default on the mortgage.

When an appraisal comes in below the agreed upon price, a buyer may not be able to borrow the amount needed to buy the home. At that point, the buyer usually has to make up the difference with a larger down payment or walk away.

This scenario was widespread in 2010, as foreclosures swelled following the housing bust, resulting in a surge in homes being valued by appraisers below what some buyers were willing to pay.

The same may be happening again, but for very different reasons.

The median price of previously occupied homes has climbed 7.5 percent over the past year to $202,600, according to the National Association of Realtors. One key factor: The inventory of homes for sale was at just 4.6 months in February. Thats down from a historic average of around 6 months.

Were definitely in a market thats shifted since 2012 to one where youre more likely to see a sales price thats above the appraisal, said Daren Blomquist, a vice president at real estate data firm RealtyTrac.

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Home appraisal comes in below your price: Now what?