Why would a house not appraise for the sales price written in a Maryland residential contract of sale?

When a Maryland residential contract of sale is agreed upon between a buyer and seller, and if that contract has an appraisal contingency as a part of the agreement, an appraisal may be ordered. –> Please note that not all Maryland home sale contracts have an appraisal contingency.

If the buyer is obtaining a mortgage, and it is a requirement of the lender, the lender is usually the one who orders the appraisal. If the buyer is not obtaining a mortgage where an appraisal is a part of the requirement, it is still possible that a buyer may separately order an appraisal if a contingency is in the contract of sale.

So why could a house not appraise for the sales price in a Maryland Residential Contract of Sale?

An appraisal is a subjective independent assessment of a property’s value usually conducted by a professional appraiser.

The appraiser needs to provide comparable sales nearby that they used to come up with the value in their report.

  1. If there are not many recent comparable home sales nearby, the appraiser may have difficulty meeting the contract sales price value in their report. It may not seem fair that if there are not many recent home sales nearby that the house changing hands would have the sales value questioned. However, if the appraiser cannot compare the home to others, how can the appraiser come up with a value? The appraiser may have to draw on home sales nearby that may *not* be truly comparable, but then add and subtract value based on what those homes had or didn’t have compared to the subject.
  2. If the home has been completely redone in comparison to others in the area, the appraiser may not be able to assign the general value for those improvements, because the neighborhood, in general, may affect individual home value. The same goes for if the home being appraised is in significantly worse condition than the general neighborhood in the appraiser’s opinion.
  3. If the contract price, in the appraiser’s opinion, seems out of line with comparable home sales nearby, the house may not appraise for the contract sales price. If there are plenty of comparable home sales at a lower price than this home’s contract price, the appraiser has to take the other homes into consideration and may not be able to assign a higher value than the next highest comparable home sale.

It can be disappointing and upsetting for a buyer and a seller if an appraised value does not meet the sales price value in a Maryland home contract of sale.

Your contract of sale may help determine what the next steps may be in order for the contract of sale to close. Please talk to your real estate agent to work through what happens if the home does not appraise for sales price.

Each Maryland residential contract of sale may have different terms in them, so you need to review your contract to read what yours says, and work with your agent(s) and other parties in the contract to figure out what may happen next.

If you are not under contract with a real estate agent, and are considering buying a home in Towson or selling a house in Timonium please contact me. I would love to be able to help guide you through the Baltimore home buying process!

Please note that I am not a lawyer, and this post should not be taken as legal advice.