Recent survey showed that a third of the real estate agents who had a home sale agreement or two fall out of escrow monthly. The end of these deals comes in when the appraisal is below the agreed purchase price or, when the mortgage is greater than its current value, as in short sale homes.
We know for a fact that mortgage lenders fund only up to but not more than the appraised value of the property.
To close the transaction, the buyer may have to increase the down payment or the seller may have to reduce the price. Any one of these or both should happen to close the deal.
Low appraisals can sure be a deal killer, but it is not the end, there are things you can do yet. Should the appraisal be lower than the sale price in the contract, here are five things you can do.
Report errors to the appraiser. It is a must that you read the entire appraisal report carefully and look for possible errors. The appraiser may have missed a room and miscalculated the home’s square footage. These errors makes wrong “comparables” when the appraiser chooses a property that will serve as a benchmark in your home’s fair market value.
Even if you find errors in the details of the home you are selling or buying, you must still consult with your agent if the comparable properties that were used by the appraiser were reasonable, considering the difference in neighborhood, town, and school district. There may have been a home nearby that is quite similar to the one you’re planning to buy that have been sold recently that could have been a better comparable property than that in the appraisal.
Should you find errors or find that there is a much more comparable recent sale that will make a good justification for a higher property appraisal, then ask your real estate agent to send the correct details and your proposed computation to your mortgage lender. Your mortgage lender will then work with the appraiser and request for revision of report and estimate value. Now, the appraiser may or may not make the changes, but when the error is too obvious, he will do so.
Seek for a second opinion. Most especially in cases of error or bad computations, should the appraiser deny your request for report revision, then escalate your request to the lender. This is where it makes sense that you work with an expert agent and mortgage professional with a solid reputation; if they affirm with you, they may be able to appeal to the underwriter and request for a second appraisal. If the second appraisal supports your argument with the correct property detail and an accurate comparable sale, then the lender, at its sole discretion will more likely go with the second opinion and reject the first one.
Make negotiations. Low appraisals will certainly disappoint everyone involved in the transaction. If the sellers have the equity on hand and their bank agrees (as in short sale homes), it is likely that the price will decrease to the appraised value or somewhere a little above that that the buyer feels affordable and comfortable paying a little cash more. There are buyers who refuse to pay above the appraised value, but for those buyers who just want to settle down and close the deal, they are willing to pay for them as long as they reasonable.
The seller should lower the property price when the differential between the purchase price and appraise value is small, given that the mortgage consideration would allow, but, it is also just appropriate to request the buyer to make up for the small difference knowing that there are many potential buyers in the market. However, should the differential be big, it is least likely that the buyer will shoulder the gap. On the seller’s end, they may also hold the property and wait for the market to be more active and offer better comps.
For a win-win solution for this situation, the buyer will tend to close the gap of $1,000 appraisal gap if the seller agrees to leave some appliances and do a little rectification.
Consider paying the difference or renegotiate to split the difference. If you have long been looking for a home, sacrificing the low rates, tax, and lifestyle benefits of owning your own, and you have finally said “this is it”—in excellent condition, not a short sale, and in a location that perfectly suits you, then might as well consider paying the difference between the purchase price and the low appraisal. This would be wise do to when the gap is small and you have the cash on hand, or when the seller is hardly breaking on the deal or has offered to share the difference with you, or when the short sale bank refuses to go lower.
And for the sellers: if you would really want to close the deal, then reduce the price of the home. Take into consideration that there are states and loan situations wherein the seller has to disclose to other buyers about the low appraisal report on past failed deals, refer to your agent if this is applicable to you. If you don’t agree with the price reduction or difference sharing, understand that you could lose the current deal, this will limit your option to sell at a lower price, and this could force you to do a short sale or put the sell on hold.
Choose a different lender. Mortgage banks are able to select various appraisers than mortgage brokers do. However, there are also experienced local mortgage brokers that work for several companies that have a banking division, and they can process your loan through such division and start with the loan process all over again with attempts on working around the previous low appraisal.
Mortgage brokers don’t have the capacity to choose appraisers, unlike broker-only firms. These firms have a middleman company that pays a cut rate, thus, their appraisers could be those who have less experience. On the other hand, mortgage banks and hybrid appraisers have the power to select a set of experienced third party companies that have access to experienced appraisers.
And to the agents: How have you handled previous successful transactions that had low appraisal? How do you make your buyers and sellers agree with negotiations when the appraisal is low?
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Call Stephanie Anson today at 352-535-0620 for a confidential phone interview regarding your options.
Please seek legal advice. This information is for informational purposes only.
Contact Stephanie Anson, CLHMS, CDPE, SFR, Realtor®, Anson Properties LLC. Licensed Realtors® in Florida at 352-260-0153 to list your property for sale or to purchase a property in Gainesville, Archer, Alachua, High Springs, Waldo, Keystone Heights, Hawthorne, Melrose, Cross Creek, LaCrosse, Williston, Earlton, Ocala, Micanopy, Newberry, Kanapaha, Haile Plantation, Duck Pond and the rest of Alachua County Florida, Orange County Florida and Seminole County Florida. We are accepting referrals. Gainesville Short Sale Agents