"OH CRAP! The house didn't appraise..."
In a HEALTHY market, like we're experiencing right now in Sarasota, with inventory at record lows and Buyers circling like hungry sharks, it's bound to happen that prices rise higher with demand and, unfortunately, higher than they should. The banks and their Appraisers, who are called to perform appraisals might be a little more 'conservative' than what the market is actually selling for and you will end up with homes NOT appraising. As a Realtor, I fear when a buyer is so HOT for a home they are willing to pay more than they should, for more reasons that it not appraising out but it can be pretty awful when you call a call that the Buyer cannot get a loan on that house they really want. What are the options when you get that call?
The Buyer and Seller renegotiate a new sales price, to the amount it appraised for.
The Buyer puts MORE money down to meet the new Loan to Value (LTV) and down payment requirements.
or, sadly, the parties CANCEL the contract.
Sometimes the appraisal is a BAD ONE (you can see what homes the appraiser chose and sometimes, the appraiser is not from the area or just did a bad job, but that rarely happens) and you can REBUT the appraisal and have another one done. Typically, the Seller and Buyer work something out that they both can live with OR if the Buyer is still hot and heavy, they usually put more money down to satisfy their lender. Still, it doesn't "feel good" to pay too much for a home...but sometimes that's just the way it goes (could be a job transfer, a situation where they buyer HAS to live in the area...you never know!)