We have a contract on our house for $365,000 and our buyers are borrowing $325,000. We are concerned that our house won’t appraise for $365,000. With the way the market is going, we’re thinking that it might come in a little lower. I know that it will appraise for more than what the buyers are borrowing, but if it comes in lower that the asking price, does it affect the buyers getting their mortgage?

-Jennifer

Yes, it is most likely that the property will need to appraise at (or at least very near) the agreed upon contract price. Mortgages are conditioned on a specific loan-to-value ratio.

In this case, it looks like the buyers will have about a 10% down payment and will therefore be financing about 90% of the value of the property. It is extremely likely that their loan cannot exceed this 90% threshold. If the property does not appraise for the sales price, your real estate contract should specify what protocols come into play. It is possible you will need to renegotiate the sales price of the home.

Ian MacMillan is a REALTOR® for Windermere Real Estate Company in the Greater Seattle Area.