I think you are looking at this through the wrong end of the telescope, so to speak. In New Jersey, the standard NJ Association of Realtors contract (and therefore almost any other contract as well) contains a standard clause that says, simply put, no mortgage, no deal. Since the terms of the mortgage that you seek is spelled out, the seller should not be able to insist that you add a cent more to your down payment to make up any appraisal shortfall. Some tricky sellers and their attorneys are attempting to put language in the contract to the effect that you will indeed do this very thing, so it is wise to have your own experienced real estate practicing attorney review the contract document. In New Jersey, you have a three-day attorney review AFTER you sign a contract. The attorney can REJECT the deal and state what would be acceptable, so you would have good protection IF YOU USE AN ATTORNEY. The terms about the down payment and the mortgage amount are just another reason why you should so.
This is a challenging real estate market. One that should find all listing and selling agents focusing on prices and offers that reflect realistic prices that are in step with the local market Agents have access to the same information appraisers use for their appraisals and should be preparing buyers and seller to deal with this information before the bank's appraisal forces them to come to grips with reality.
In short, these are times for homes to be priced right initially by the seller and it is also time for buyers to do their homework and present offers that are a true reflection of the local market .
If you are uncomfortable that your offer price is not going to appraise it would be advisable to make sure the wording of the purchase contract protects your interest and allows you to withdraw with out penalty or loss of escrow money.
The Eckler Team
You may want to discuss with a mortgage rep whether FHA is worth considering. A buyer I'm working with assumed they would go conventional but found - with the guidance of a great mortgage rep I work with - that the higher cost of PMI for the conventional loan made FHA a more cost effective alternative. And my buyer was able to retain some of savings rather than plowing it all into the transaction.
Also, remember that you'll have closing costs - don't lose sight of that.
Happy to be of further service if you need more guidance - you can reach me via Trulia.
"Unwavering Commitment to Service"
Search the MLS at http://www.feenick.com
As a local agent serving the Flemington area and know NJ laws I can say that although Fred is a Florida agent he is absolutely correct in every aspect of his answer. First, you really need to be discussing this with an attorney. If you don't have one or know of one call me. Second, you should be working with a local agent. Third: if you have concerns about appraisal make sure that both your agent and attorney are notified.
Over the past few months the pendulum has swung from "it will appraise based pon the selling price (which is the basis of market value) to appraisals coming in all over the spectrum. From low to very low to ridiculously ow and every now and then, fairly accurate.
Some mortgage bankers will use local appraisors others (usually Mortgae Brokers) will use who evers name is pulled. Many of these appraisors are not as local as one would want them to be (buyer, seller, banks, agents everyone).
Once upon a time the defination of market value was: "When an upressured seller and unpressured buyer agree upon a selling price, market value is established" to a defination that has eliminated the VERY important word "unpressured". A non-local appraiser will look at the selling prices and not know if that home was trashed in a foreclosure or was tenant occupied and trashed and do not take the condition of the property into account because they simply do not know the property or the local market conditions. They are NOT local so the problem exists. Speak to an attorney and work with a local agent. They have your interests at the fore front of the transaction.
Are you working with a Real Estate Agent or with an Attorney?
Yes, you should have a Clause in the Contract stating that it is Contingent upon your Getting the Loan, and upon the house Appraising at or above the Price you are offering.
Please, if you do not understand your Contract, do NOT sign it until you meet with a Real Estate Attorney.
The $200 or so that a Real Estate Attorney will charge you for a one hour meeting is a good investment.
Have all the paperwork when you show up for the meeting with the Lawyer.