Purchase price must meet appraisal... but which one?

By
Real Estate Agent with Coldwell Banker Residential

Ran into an interesting little scenario today.

The buyer's contract reads "Home must appraise for full purchase price, or buyer has the option to cancel the contract, with return of earnest money".

So... 20 days into the contract... appraisal comes through... and it passes... (yay!!)... but the buyers decide to use a different lender, because they can't get PMI through that lender ...  the 2nd lender sends in a new appraiser, and guess what... the property doesn't pass appraisal... they're approved for the loan.. and this lender can get them PMI (not sure why)... but it doesn't meet appraisal, and they now want to negotiate the purchase price.

But wait... we DID pass appraisal!  The first one!  It doesn't say that the property must match the appraisal that will in the end be used by the second lender, does it?

I guess the language needs to be changed to: "If home doesn't appraise for full purchase price, or higher (by the ultimate lender), buyer has the option to cancel the contract, with return of all earnest monies."

Yikes!

Posted by

 ALAN MAY, Realtor®
Specializing in Evanston Real Estate and North Shore Real Estate

Coldwell Banker Residential Real Estate, 2929 Central Street, Evanston, IL 60201
847.425.3779      Cell: 847.924.3313      Email: Almay@aol.com

Evanston Real Estate & North Shore Real Estate
Licensed in Illinois

   

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Rainmaker
447,867
Malcolm Johnston
Century 21 Lanthorn Real Estate LTD., Trenton, Ontario - Trenton, ON
Trenton Real Estate

Appraisals sure aren't rocket science. Sometimes I think the appraiser already has a price in mind when he first sees the property and then makes the appraisal match his initial gut feeling.

Feb 24, 2010 02:11 PM #1
Rainmaker
1,322,908
Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

Then the word 'ultimate' would be misinterpreted too.  AGHHH . . . this 'biz

Feb 24, 2010 02:13 PM #2
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Craig Rutman
Helping people in transition - Cary, NC
Raleigh, Cary, Apex area Realtor

Petition the appraisal Alan. I've had to do that twice in my years as a Realtor. Once I won (very happy buyers, very mad appraiser!). Once I lost (very upset buyer, but my sellers sold the home a few weeks later without incident).

Feb 24, 2010 02:45 PM #3
Rainmaker
617,905
Deborah Byron Leffler BzyBee Real Estate Lady!
Keller Williams Realty Boise - Nampa, ID

I sure don't understand appraisers in this market....I have had several that didn't appraise..and several that appraised at way higher than the purchase price....who wins there???   It sure is crazy!  

I would also really petition/challenge the second appraisal!    That seems weird that it would be so different...and I wonder why they couldnt' transfer the first one??    WHo is paying for all of these??  I would be aggravated if I was the buyer and I was paying for multiple appraisals!

Feb 24, 2010 02:48 PM #4
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Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

Malcolm - no they're not rocket science... but they're supposed to be more "science" than this.  I have never understood why we provide the contract with the purchase price written right on it... to the appraiser.  They should have to come up with their own appraisal... blind.

Carla - that depends on what the word "the" means.

Craig - the problem with petitioning the appraisal, at least in our area, is that even if the second appraisal comes in higher... they then "average" the two appraisals... still coming in too low.

Deborah - the petition would only produce an "average" (see my comment to Craig).

Feb 24, 2010 02:53 PM #5
Rainmaker
478,165
Robert L. Brown
www.mrbrownsellsgr.com - Grand Rapids, MI
Grand Rapids Real Estate Bellabay Realty, West Michigan

Did the first and second appraiser know each other and planned this little situation? Sounds like a conspiracy to me. What comps did the second one use that the first used as well? Sounds fishy.

Feb 24, 2010 03:15 PM #6
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Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

Robert - we'll never know if the two appraisers know one another.  fishy?  I'm thinkin' it stanks like Moby Dick.

Feb 24, 2010 03:49 PM #7
Rainmaker
871,258
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

Alan, every time an agent plays contract lawyer this type of unintended issue can arise, when will we ever learn that in an attempt to help our client we could be committing our client to fighting for liquidated damages when the interpretation has an alternative view.

Feb 24, 2010 03:56 PM #8
Rainmaker
267,701
John Thomas
E3 Green HOMES - Boulder, CO
EcoBroker, MSEE, MBA

Very interesting situation. I would guess everyone is right to some degree but that doesn't solve anything. I suppose a lot depends on the amount of the difference and the motivation of the seller. Let us know how it works out.

Feb 24, 2010 04:28 PM #9
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Seems to me that, if the buyer qualified with the first lender and the apprisal contingency was satisfied, they have to close with that lender. 

Unless the seller agreed to substitute the first lender for the second one, the buyers had to continue processing the first loan and would have to close, with or without PMI. 

Buyers can't just decide on their own that they're going to change lenders when the seller accepted their contract with the pre-qualifying letter from the first lender.

Unless, of course, the first lender denied the loan based on the lack of MI. 

Feb 24, 2010 04:32 PM #10
Rainmaker
296,280
Sandy Nelson
Riley Jackson Real Estate Inc. - Olympia, WA
your Olympia area Realtor

I agree with Lenn's assessment above, but besides that, this incident really illustrates how important it is to be careful in crafting addenda language. It's difficult to foresee the consequences and interpretation.

Feb 24, 2010 06:32 PM #11
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542,073
Larry Story
Total Care Realty - Greensboro, NC
Total Care Realty, LLC, Greensboro, NC Real Estate

Hmm Alan I would think that you have them by the short hairs.  After all there was a lender ready willing and able with an approved appraisal.

Feb 24, 2010 06:47 PM #12
Rainmaker
400,263
NW Real Estate |Colleen Fischesser & CO Serving Seattle-Tacoma area Since 1990!
RE/MAX Select R.E | Designated Broker/Owner - Renton, WA
Serving Seattle-Tacoma Home Sellers & Buyers since

If they can't get PMI w/ the first lender then their financing contingency wasn't satisfied. I think it's implied that the appraisal must be the one used in making the loan. First is a moot point unless you can get the 2nd lender to accept it. This is why lawyers make the big bucks though...they can argue it both ways :-)

Feb 24, 2010 06:48 PM #13
Rainmaker
173,379
Richard Glesser
North Country Appraisal Services - Gaylord, MI

I can't even fathom the suggestion that this was appraiser conspiracy.  To what benefit would either appraiser have in setting up this scenerio?  The ONLY benefitting party in this is the buyers if they wanted out of the deal.  And even then, they would have paid for two appraisals.

Feb 24, 2010 07:36 PM #14
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Alan May
Coldwell Banker Residential - Evanston, IL
Evanston & Northshore of Chicago real estate

Steve - seemed like a pretty simple sentence.. but you are correct... let the attorneys handle it.  Of course, not all states use attorneys.

John - it's not my transaction... but I'll let you know what I learn.

Lenn - lender refused to fund without PMI... but otherwise, a surgical assessment of the situation (and no... not the Jersey Shores situation).

Sandy - it was just another level of protection... the mortgage committment already basically says the same thing.

Larry - not quite ready.. the lender refused to fund without PMI.

Colleen - it is implied... but as you know.. "implication" in a contract ... hmmmm open to interpretation.

 

Feb 24, 2010 07:40 PM #15
Rainmaker
914,993
Jane Peters
Power Brokers Int'l - Los Angeles, CA
Connecting you to the L.A. real estate scene

There's always something new isn't there.  There has to be something wrong with this picture.

Feb 24, 2010 10:10 PM #16
Rainer
310,269
Liz Flint
Century 21 Hardee-Team Realty - Houston, TX
Houston\Tomball Realtor (832)816-8066

Hey Alan, interesting situation.  Hope all went well in the end.

Feb 24, 2010 10:28 PM #17
Rainmaker
146,482
Caren Wallace
Premier Property Group LLC - Tualatin, OR
Portland Caren Real Estate

Alan, frustration of the loan process is only getting more demanding! We have to find some courage and steely nerves to weather this storm!

Feb 25, 2010 07:09 AM #18
Rainmaker
401,973
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass

Alan:

I often insert that phrase into an offer, "Property must appraise for the selling price." I have never had the situation happen that you have described but my feeling is that once it appraises, that contingency is therefore removed.

 

Feb 25, 2010 07:45 AM #19
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