Foreclosure in Texas>Question Details

Orlando Reyes, Home Buyer in New York

what happens if a house appraises for less than what you offered in NY?

Asked by Orlando Reyes, New York Tue Dec 22, 2009

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Depends--what does your loan offer officer suggest--will the lender still give you a mortgage--chances are probably not--what does your agent suggest--will the seller agree to a lower asking price--if not, and if you really must have this property, you'll need a larger downpayment so that the lender will still give you a loan. If all fails, you have the right to your deposit back--you may also want to run your dilemma past your attorney as well, especially if your downpayment needs returning.
1 vote Thank Flag Link Tue Dec 22, 2009
Orlando,
While the question you asked was posted in TX, I can tell you that your choices should be about the same as long as you or your agent provided the correct addendum to your contract for purchase and you are using a lender to secure the mortgage.
The specific Addendum would be a Third Party Financing Condition addendum. In the case of a loan being obtained on the property, the addendum protects your right to terminate the contract if the offer amount you made on the home is in fact more than the appraised value, minus your down payment. In other words, if you offered $100,000 for the home and put down $3,500 the appraised amount of the home must be no less than $96,500. If the appraisal comes in at $95,000, you have a few options:
1. Submit an amendment to the contract requesting the seller lower the sales price to the amount reflected on the appraisal.
2. Terminate the contract and reference the Third Party Financing Condition as your reason, submit a Release of Earnest Money Request and make sure 100% of your Deposit is returned to you.
3. Pay and additional $1,500 in addition to your 3.5% down payment to make up the difference as the lender will not finance this amount.
The chances are even better that your amendment will be accepted in the event that the home was appraised by an FHA appraiser as this is something that very rarely can be overturned and is a certified value that will stay with the home with a specific FHA case number usually starting with 491-.
In the event you have offered cash for the home and the appraisal has come in below your offer, there are a very limited number of options that are available. If your offer was made through the guidance of a Realtor, it would not be unheard of or uncustomary to request the agent help make up some of the difference via a rebated commission.
One thing to keep in mind is no matter how much we’d like to think that an appraisal is objective and would be within the same range no matter who evaluated the property, the facts remain that these are done by humans (as is still more accurate than any computer generated system thus far) and there is room for margin & subjectivity. Make sure the appraiser that was used to value the home was local and has done a majority of their work in the specific area of where you are purchasing.
If you need additional information about your possible recourse, it is suggested you speak with your agent or contact a Realtor in the area where you are purchasing.
Robert Regan
Web Reference: http://www.RKRegan.com
1 vote Thank Flag Link Tue Dec 22, 2009
It depends on what kind of loan you are doing. In most cases, lenders will only lend up to appraised value. So, if the seller is not willing to lower the price, and you just have to have that house... you will have to shell out the difference out of pocket... In most cases, when you have an appraisal in hand, and your Realtor is worth their wait in salt, they will negotiate the price down to match... if not, the seller is always welcome to obtain their own appraisal. If the seller just wont back down, and you don't want to pay more than appraised value, simply get your earnest money back, and go find another home..
0 votes Thank Flag Link Fri Dec 17, 2010
As the others have stated the bank will only lend based on the lower of the appraised value of the home or the purchase price. If the appraisal comes in low:

1. The buyer can choose to pay in cashthe difference between the appraised value and the purchase price.

2. The seller can lower the purchase price to the appraised value (or a number in between can be negotiated).

3. The buyer can walk away from the deal.

In addition to the ammendatory clause required with FHA loans, you are usually protected by your mortgage contingency clause-found in any real estate contract-with conventional loans unless you are purchasing your home in cash and have waived the right to a mortgage contingency.

The mortgage contingency clause in your contract states that the sale of the home is contingent on the buyer getting a loan (conventional or FHA) with a specific dollar amount the buyer intends to borrow.

If the appraisal comes in lower than the purchase price, then the mortgage contingency will protect the buyer because he cannot get the agreed upon loan.

Hope this was helpful.

Good luck.
0 votes Thank Flag Link Tue Dec 22, 2009
It depends on the kind of financing you're using.

All loan programs use the appraised value or the sales price WHICHEVER IS LOWER to determine the value.

What this typically means is the buyer must put more money down.

On FHA and VA transactions, there's a guideline that protects homeowners that says if the house does not appraise for the sales price that the buyer can get their earnest money back. There's a disclosure to be signed by all parties called the Real Estate Certification and Amendatory Clause on all FHA and VA loans.
0 votes Thank Flag Link Tue Dec 22, 2009
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