2nd Appraisal FHA Loan

[TeddyBare]

I am in southern california and about 1/2 through the proccess of trying to buy a house. The house is currently investor owned and has been completly remodled. My question is the house appraised slightly below the asking price (427 vs 429k) I was supprised as it is one of the lowest $/sqft listings in the neghborhood and definetly the nicest. The seller is requesting a 2nd appraisal and I am concerned that it may come back even lower than the first (From what I've read). What are the best/ worstcase senerios for this situation from the perspective of the buyer assuming the seller will not negotiate on the asking price.

Thanks for any help.

 

[CANative]

The seller has no standing in this. The lender cannot order a second appraisal just to try and get a higher value.

There some "flipping" rules that affect whether or not a second appraisal is needed. It has to do with how long since the last sale and the amount of increase between that sale price and the new sale price.

 

[Mztk1]

Worst case the deal dies. But if two appraisers come in below asking price, that ain't so bad.

You could throw in the difference with cash if you want the house that badly.

But if two appraisers come in low, you have pretty good leverage for the seller to come down in price. Especially since FHA loans make up a big part of the market and another case number will not be issued for another 6 months, meaning for that house FHA will be out of play.

 

[Walter Kirk]

The FHA won't allow a second appraisal unless there is something seriously wrong with the first one. A difference of less than 1/2 of 1% is quite acceptable. If your only problem with the purchase is this small difference I suggest paying the $2,000 in cash.

 

[JAgnello]

When a property fails to appraise at the contractual price, a few things could happen. The seller can reduce the sale price of the home by the amount of the variance ($2,000). A buyer can elect to pay the difference between the contractual price and the appraised value, or a combination of the two can occur. Your agreement of sale should contain a FHA Amendatory clause which states that the buyer can elect to pay the amount over the appraised value but is not obligated to do so.

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This clause reads as follows:

AMENDATORY CLAUSE. It is expressly agreed that notwithstanding any other provisions of this contract, penalty by forfeiture of earnest money deposits or otherwise unless the purchaser has been given in accordance with HUD/FHA or VA requirements a written statement by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement lender setting forth the appraised value of the property of not less than “zzz” (the blank is filled with the contractual price). The purchaser shall have the privilege and option of proceeding with the consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value or the condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable.

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In a market like this many sellers may find it difficult to find a buyer that would be willing to willing to pay above the appraised value. In some transactions even if the buyer is willing to pay the difference, their ability to do so may be a problem.

As Walker pointed out, the selling side will need to present a strong case supported by data if they intend to try and dispute the value. The argument “we don’t agree with this value just isn’t going to cut it.” In my professional opinion I think the seller is making too much of all this.

Ultimately if an agreement cannot be reached with how to handle the variance the deal could be dead in the water.

 

[Mile High Trout]

Teddy,

Listing prices are not the same as the cash equivalent of sold prices. Sellers can list homes for whatever they like, but the lender only makes loans based on the collateral worth of the home. That's usually indicated by the appraisers value opinion. The value opinion is driven primarily by the cash equivalent sales prices from the past year in most marketplaces.

Investors have a budget and want to stick to it. But the appraiser does not work for them. The market data may have indicated to the appraiser that the investor had overpriced the property, at least a little bit.

Decide for yourself if the $2k cash contribution is acceptable to offset the difference. Negotiate if you can. The act of reducing the price the 1/2 of 1% which is $2,000 is a minor issue. The seller is being stubborn.

The seller could be raking that appraiser over the coals for that one, but that does not have any bearing on how quality the appraisers opinion is. It would just mean the seller is not acceptant of someone elses opinion regarding the value of his property. Remember, the sellers have a personal interest in the property and are biased. Appraisers are required not to have a personal interest in the property, so that they may remain objective.

 

[Lobo Fan]

FHA requires a second appraisal if the loan amount is over a certain amount and if the LTV is below a certain percentage. It is difficult to predict the outcome of the second appraisal. If you are in a declining market it could easily come in lower. The seller has zero say about the second appraisal or any appraisal. The purpose of the appraisal is to provide data to the lender about how much to loan on the property.