What Happens When the Appraisal Comes in Low During a Divorce Home Sale in New Jersey?

A low appraisal doesn't end a sale on its own: the usual paths are renegotiating the price, the buyer covering the gap, asking the lender to reconsider the value, or putting the home back on the market. In a divorce, both owners have to agree on which path, inside the contract's deadlines, so decide how you'll decide before the appraisal comes back.

I'm Dennis Mark Interdonato, a REALTOR® and Master CDRE® with The Dennis Mark Group at Keller Williams Realty Ocean Living. A low appraisal is stressful in any sale. In a divorce, it lands on two sellers who may want opposite things, with a deadline running. Here's what's actually happening and what you can do about it.

Why does the buyer's appraisal matter so much?

Because it sets how much the buyer's lender will lend. For a purchase, Fannie Mae's guide says the property value used for the loan is the lower of the sales price or the current appraised value (Fannie Mae Selling Guide B2-1.2-01). If the appraisal comes in under the contract price, the loan shrinks with it, and somebody has to deal with the gap.

This isn't the value used in your divorce. That one is set for the case. Read how the marital home is valued in a divorce.

Why is a low appraisal harder in a divorce sale?

Two sellers, two sets of priorities. One of you wants to give a little and keep the deal. The other wants to hold the price because every dollar comes off what you're dividing. Both are reasonable. Neither can decide alone, unless your order or agreement says otherwise, and the contract's clock doesn't care that you disagree.

What are your options when the appraisal comes in low?

1. Renegotiate the price

The buyer asks you to come down. The CFPB tells buyers they can often use a lower appraisal to negotiate a reduction (CFPB). You can agree, counter, meet somewhere in between or decline.

2. The buyer covers the difference

A buyer with cash can bring more to closing and keep the price. It depends on what the buyer can afford.

3. Ask the lender to reconsider the value

If the appraisal missed something, the buyer, as the borrower, can ask the lender for a reconsideration of value. Fannie Mae's guide allows one borrower-initiated request per appraisal, identifying what's unsupported or inaccurate, with up to five comparable sales, and none after the loan closes (Fannie Mae Selling Guide B4-1.3-12). Federal rules let an agent ask the appraiser to consider additional property information, including comparable sales, but never to pressure the number (12 CFR 1026.42). I'll put together the recent sales for the buyer's side to submit.

4. Put the home back on the market

If nobody agrees, the deal can end, and what happens to the buyer's deposit depends on the contract. FHA and VA loans come with buyer protections: under HUD's amendatory clause, an FHA buyer isn't obligated to complete the purchase or lose the deposit if the appraisal comes in below the price, but may still choose to go ahead (HUD), and VA tells its buyers to make sure the contract includes the VA escape clause, which lets them void the contract if the home doesn't appraise for the price (VA.gov). For a conventional loan, the contract's terms decide, so ask your attorneys.

How do two divorcing sellers decide in time?

1. Agree on the process before it happens. The written plan both of you sign before listing says how fast each of you responds and where a deadlock goes.
2. Look at the same numbers. Both of you get one summary: the appraised value, the buyer's request, and your net under each option, including what another month or two of carrying costs means if the house goes back on the market.
3. Decide on data, not on who's right. Recent sales, the appraisal itself and the buyer's position.
4. Watch the deadline. If the two of you can't agree in time, the decision goes to your attorneys before the contract's clock runs out.

What mistakes do sellers make with a low appraisal?

• Reacting to the number before reading the report
• Assuming the appraiser got it wrong
• Letting a disagreement between the two of you run past a contract deadline
• Forgetting that the next buyer's lender will order an appraisal too
• Treating the buyer's appraisal as the value in your divorce, or the other way around

Can you keep it from happening?

Not always, but you can lower the odds. Price from recent sales, not from what either of you needs to walk away with. Read why the first two weeks matter.

Frequently Asked Questions

Does a low appraisal mean we overpriced the house?

Not necessarily. An appraisal reflects specific comparable sales and conditions on its date. Read the report before deciding.

Can we refuse to lower the price?

Yes. The buyer may then cover the gap, ask for a reconsideration or walk away, depending on the contract.

Can the buyer walk away after a low appraisal?

It depends on the loan and the contract. FHA and VA buyers have the federal protections above. For a conventional loan, the contract's appraisal or mortgage terms decide, so ask your attorneys.

Who asks for a reconsideration of value?

The buyer, through their lender, because the buyer is the borrower. I can supply the recent sales.

Does the divorce lower the appraisal?

No. The appraiser values the house, not the situation. What the divorce affects is how fast the two of you can respond.

This is general information, not legal, tax or lending advice. Your attorney and the buyer's lender have the final word on your contract and the loan.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. He's a former New Jersey home builder and residential remodeler. See how he handles home sales during a divorce.

Keep reading

• The Divorce Guide
• Start with a home value both of you can see
• How offers are presented in a divorce sale
• Have a question this didn't answer? Send it to Dennis Mark.