1. Welcome to AppraisersForum.com, the premiere online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

What happens if home doesn't appraise?

Discussion in 'Ask an Appraiser' started by MassResident, Oct 27, 2009.

Thread Status:
Not open for further replies.
  1. MassResident

    MassResident New Member

    0
    Oct 26, 2009
    Professional Status:
    General Public
    State:
    Massachusetts
    Hello and thank you for letting me ask this question here. I read through a bunch of threads last night and couldn't find a similar one so I'm sorry if this has already been addressed.

    Here is the scenario: We put an offer in a house and it was accepted. The asking price was $599,900. We settled at $575,000. The listing agent provided comps for the house that we feel are much larger (more square footage, 4 beds instead of 3 and more baths). We feel that the house is overpriced however, we have searched and searched and really want to purchase the home - it has many improvements which would be costly in other homes.

    The assessed value of the home and Zillow have it comping for 80K LESS than we are going to pay for the home. I know these are not reliable sources to use for comps, however, we are worried the home won't appraise and we will be stuck paying the difference.

    If the home comes in at say, $525, who pays the difference? Does the seller lower the price? Will we lose our deposit if we back out? We are putting a mortgage/financing contingency clause AND an appraisal clause in our P&S however, we are still nervous.

    The other issue is we don't want to buy a house at an over-inflated price. It is still very competitive here for homes and we have lost several which have gone under agreement before we had the chance to bid.

    We are afraid to move forward with signing the P&S but at the same time, we don't want to lose the house. We told the listing agent our concerns and she assured us it will appraise. However, after discussing the issue with several informed sources, we were told that the appraising is oftentimes down online, from someone in say, California, and they do use Zillow and that the house won't comp.

    HELP!!!!!!


    Thanks,
    Jack
     
  2. David Wimpelberg

    David Wimpelberg Moderator Staff Member Moderator

    147
    Mar 30, 2005
    Professional Status:
    Certified General Appraiser
    State:
    New York
    Many of your questions are issues that will be dealt with contractually. First and foremost is the mortgage contingency. The contract will typically have one, unless you've agreed to an all-cash deal without one.

    With regard to the mortgage contingency, if you can't get a mortgage, typically the deal is dead. You get your deposit back and that is the end of it.

    If you can obtain a mortgage, but based on a lower price than you agreed to, you can negotiate. Maybe they'll lower the sales price. If not, then you can walk away.

    Keep in mind that I am talking about typical circumstances. The specifics will depend on the actual wording of the sales contract, which your attorney should be familiar with.

    The scenarios involving what type of valuation is necessary for the particular property is difficult to summarize. It will depend on such factors as the size of the mortgage, the loan-to-value (LTV) ratio, the lender, etc. Various Automated Models (AVMs) could be used, if the lender permits them; e.g., a $25,000 with an LTV of 25%.
     
  3. Ken B

    Ken B Elite Member

    157
    Feb 18, 2004
    Professional Status:
    Certified General Appraiser
    State:
    Florida
    A good purchase and sale agreement should address all of your concerns. Your questions are of a legal nature and it would not be prudent for an appraiser to attempt to answer them.
     
  4. Marion Rhodes

    Marion Rhodes Elite Member

    Top Poster Of the Month

    743
    Feb 26, 2006
    Professional Status:
    Certified General Appraiser
    State:
    Pennsylvania
    Check with your lender and find out how they will value the home you intend to purchase. Specifically ask them if they will you an appraiser or if they will use a BPO performed by a Realtor, an Automated Vauation Model, or something else.

    Once you know how they will value the home, then it maybe easier to get some specific answers from experienced Realtors in that area or from appraisers here.

    Good luck with your purchase.
     
  5. Mike Kennedy

    Mike Kennedy Elite Member

    337
    Sep 28, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    New York
    "We told the listing agent our concerns and she assured us it will appraise."

    Suggest reading your statement above............THEN....your other statement below - TWICE, slowly.

    "The listing agent provided comps for the house that we feel are much larger (more square footage, 4 beds instead of 3 and more baths)."

    Prior to taking ANY action:

    1. require the listing agent to provide at LEAST 3 closed sales within the prior 6 months which are MORE similar to, and/or slightly inferior to, the potential purchase. i.e. PROVE her assertion above.

    2. have a sit down, calm, meaningful discussion with your Attorney and REVIEW exactly what it is you plan on signing. Discuss the so-called "comps" provided by the Listing Agent who has a vested interest in obtaining the HIGHEST possible sale price for HER client (who is not ................YOU).

    p.s. just because properties sold does NOT make them "comparables".

    3. Hire a totally INDEPENDENT Certified Appraiser .........A.S.A.P. prior to taking further action and get an INDEPENDENT Opinion based on hard FACTS on truly COMPETITIVE, local sales.
     
  6. SANDY

    SANDY Senior Member

    0
    May 17, 2007
    Professional Status:
    Appraiser Trainee
    State:
    Florida
    3. Hire a totally INDEPENDENT Certified Appraiser .........A.S.A.P. prior to taking further action and get an INDEPENDENT Opinion based on hard FACTS on truly COMPETITIVE, local sales.

    Now there's a novel idea. Should be standard operating procedure before making what is most likely the most expensive purchase of one's life. If even a small fraction of the general public were to follow this advise there would be many many many more truly "independent" appraisers instead of the AMC lackies.
     
  7. Denis DeSaix

    Denis DeSaix Elite Member

    413
    May 16, 2005
    Professional Status:
    Certified General Appraiser
    State:
    California
    Jack-

    The part I bolded, as I read it, tells me this:
    You believe the house you've put an offer on is overpriced (I assume overpriced at $575k), yet you want to purchase it nonetheless.
    If it doesn't appraise at your negotiated contract price (it appraises lower), who should pay the difference?

    Did I read that correctly? If not, then disregard the rest of my comments. If so....

    You can certainly over-pay for a house if you want to (that's your right and the American Way!). As to who should pay for it, you should, shouldn't you?
    The function of the appraiser (in your scenario) is to provide his or her opinion of market value to the lender so the lender can make a prudent lending decision based on the market value of the home.
    You want to borrow money from the bank. The bank is fine with lending you money. The bank, however, does not want to over-pay for the house using its equity position (the mortgage).
    So, if the house is in contract for more than what it is worth, shouldn't the buyer who (in this case) acknowledges that the price is more than what it should be pay the difference?

    I'm not trying to be flip or harsh. Homes do sell for more than market value based on specific buyer motivations. And, when the market is tight (as it was in California 2005-2006), it was common for buyers to bid-over asking price to secure the house. In a competitive market, there is always a risk that a buyer could lose out on his/her bid. If the buyer wants to reduce or eliminate that risk, they can pay a risk-reduction premium. In the case you describe, that risk-reduction premium is the price you are willing to pay over-market to secure the home.

    If I misunderstood your post, I apologize.
    And, as others have said, this is a contractual situation. You may be able to gain the right to renegotiate the contract if it does not appraise at the purchase price... but the buyer may require you to forfeit some of your deposit if that happens and you decide to walk.
    If you think you are paying over-market, convince the seller you are as well and use that as a negotiating leverage to gain other concessions in the terms of the contract.

    Good luck.
     
  8. MassResident

    MassResident New Member

    0
    Oct 26, 2009
    Professional Status:
    General Public
    State:
    Massachusetts
    Thank you for all the advice. I did ask for better comps from the realtor but haven't seen any yet.

    I have discussed this issue with my attorney and he is making certain to include language in the P&S that says "house must appraise at or above purchase price" and we do have a mortgage contingency clause as well.

    We haven't had the home inspection yet either.

    I do want to hire and independent appraiser. Anyone know someone in the Boston area who is realiable?

    thanks!
     
  9. Mike Plumlee

    Mike Plumlee Junior Member

    0
    Feb 21, 2007
    Professional Status:
    Certified Residential Appraiser
    State:
    Texas
    Sorry, but that carries no weight at all. The listing agent (that uses larger comps) says it will appraise. And you have his/her "assurance" that it will appraise. Ask the listing agent if he/she will pay the difference between the sales price and the appraised value if it is "assured".

    Your instinct is telling you something may be wrong. Your instinct is correct. It really is time to call a time-out and get some professional unbiased opinion(s) about this home. The only unbiased professional opinion is an appraiser's. Everyone else involved in this whole transaction has skin in the game and commissions to make.

    Best of luck to you.
     
  10. Paul Isolda

    Paul Isolda Senior Member

    2
    May 20, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    Connecticut
    If you are using a large, national lender it is likley that your appraisal order will go through an AMC (appraisal management company). The appraiser will likely be chosen based on only 2 criteria, how fast and how cheap? The result will be no more reliable than the lousy comparables the agent gave you. Please, please, please get an appraisal from a knowledgable and reputable LOCAL appraiser. It will be the best few hundred dollars you ever spent.
     
Thread Status:
Not open for further replies.

Share This Page