Appraisal Lower Than The Purchase Price?

By
Real Estate Agent with Dilbeck Real Estate Real Living

Uh oh! What happens if after you've made an offer on a house and you're now working with your lender and their appraiser came in with a value less than the purchase price?

This has happened on many occasions and hopefully your agent has put in the contract a provision that deals with this eventuality. Since you cannot get a loan for more than the appraised value, and the seller will have a difficult time finding another buyer who is willing to pay more than the home is worth, it is in the interest of both parties to try to work this situation out. Normally, you would try to get the seller to agree to a lower price that would match the appraisal. If the seller balks at this idea, and you absolutely love the house, you can consider paying the difference between the purchase price and the appraised value in cash, through a higher down payment. If you are not in a position to do this, the only remaining option is to cancel the contract and look for another home. But, again, this must have been clearly spelled out in the contract in the very beginning so that you don't lose your earnest money deposit.

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Rainmaker
446,004
Vickie McCartney
Maverick Realty - Owensboro, KY
Broker, Real Estate Agent Owensboro KY
Linda, I have had this happen to me.  The contract clearly stated that the house had to aapraise at the purchase price or better.  The buyers decided to pay the difference anyway  and still bought their own. 
April 24, 2008 01:22 PM #1
Anonymous
Anonymous
Warren Petracek

The important question is not "what to do..." but "WHY."  Being both an appraiser  and a broker I can offer 2 quick answers to the WHY.

1. The property was over priced and the appraisal reflected the market value.  In this case perhaps the agent should have raised a "red flag" and explained the market to the buyer.

2. The appraiser was unfamiliar with the market in which the property was located. When this has happened to me  and I am certain that this is the case, I contact the lender to have a more experienced appraiser re-appraise the property.

3. The appraiser was being ultra-conservative to play it safe. (Colorado has been very watchful of appraisers who over value properties.)  In this case I would contact the appraiser and discuss the valuation and hope to reach a a more realistic value.  If not, I again contact the lender and try to get another  appraisal  done.

Remember:  A appraisal is one persons opinion of value.  If the data on which the value is complete, the appraisal should fall in a defined value range.  GOOD LUCK.

 

April 24, 2008 01:38 PM #2
Rainmaker
44,700
Linda Lane-White
Dilbeck Real Estate Real Living - Altadena, CA

Indeed, this happened to me last year. A condo in Claremont, California was listed at $620,000. Though my comps showed a value of $590,000, my buyer still wanted to offer more because she wanted the place so badly. The final price agreed on was $612,000. The appraisal came in at $595,000.  She ended up paying the difference instead of walking away from the home because the seller's agent wouldn't budge on the price - and, again, my buyer was in love with the condo.  Now she's in a new relationship and bought a condo 50 miles across town in Reseda, California. The condo in Claremont is now a rental.  Oh, love!!!!

April 24, 2008 01:57 PM #3
Rainmaker
117,220
Sara Goodwin
Ashcroft & Associates - Portland, OR
Portland, Oregon Appraiser

Hello Linda -

I'm surprised that this isn't a basic contingency on all offers.  This is especially important for new constructions.  I have heard stories where the appraisal value is lower than the offer price and so the builder jumps in with their independant lender with their own appraiser (or often just an AVM).  Usually the rate is higher and the loan inferior to open market loans, but hey, the builder made another sale. 

Because a lot of these homes don't make it onto MLS systems, the general public doesn't think about offer price vs. sold price on existing sales in the development.  What is eye-opening is seeing stark differences in sold prices between the builder's lenders sales and the open market lender's sales.

Your post has been featured here.  Thank you.

June 16, 2008 11:33 AM #4
Anonymous
Anonymous
ray

if my house appraises for more then im selling it for can i ask that buyer for the higher amount....umm NO!!!! thats just stupid....

but if my house appraises for less the amount im selling it for the buyer thinks he is getting ripped off, and he wants the selling price lowered....humm the irony

i had a VA inspector/appraiser come to my home and he spent a total of 10 mins. measuring the outside, and drawing out where the rooms were....how can you get an accurate appraisal in 10min. this guy needed to go back to whatever school it is you get your ability to apprase....

April 23, 2009 03:42 PM #5
Anonymous
Anonymous
Joe

I'm selling my house. Got an offer for the listing price $300K. In the offer, the buyer waived ALL inspections and only has a mortage contingency. (no apraisal contingency) Mentioned in the offer is that they will be putting down $20K and have a loan $280K. House then gets appraised at $283K. $17K less. I'm willing to drop the price $10K to $290 having the buyer bring the same $20K. Buyer would pay the $7k difference to me and still have $13K for a down payment. The buyer's mortgage would then be $270K, thats $10k less than originally planned. They are not spending anymore however they decided to back out becasue "we can't agree on a price". Am I missing something here? I feel that I have compromised pretty well and therefore I am not releasing the funds. As Ray suggested, what if my house came back at $310K would the buyer then pay the $310K? Probably not. Its this greedy mentality that sends the the RE market into a tizzy up or down.

November 26, 2009 12:42 AM #6
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Rainmaker
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Linda Lane-White

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