In our area there are two contracts the CAR (state) and PRDS (regional). CAR has a box to check or not check regarding Appraisal. If not checked it states it IS contingency on Appraisal. The PRDS contract is not as clear, unless it is written in specifically.

A past Broker of mine stated that the PRDS Loan Contingency covers the Appraisal. Another Broker told me that it should be written in to clarify. You can see that this is not clear.

When questions like yours come up the recommended procedure is;
1) Read your Contract (see above)
2) Talk with your agent and their Broker
3) If the parties can not come to an agreement you seek Legal Council

Some options to think about:
You can ask that the Seller reduce the price down to the appraisal, if they agree you put it to writing,
You can pay the difference or negotiate a compromise
You can request to cancel the contract
You can get another appraisal

Since were on Trulia are not a party to the contract we can not advise you, and if we could should be general in nature since we do not have the full picture to do so.

Jessica:
It is treu problem in recent days. I have 3 purchased properties inwhich appraisal reports valued properties
are lower than contract price $5000 to $10000. Some appraisal report indecated price $60000 lower than final
contracted prcie. in June, July, August, sales in Sata Clara extreamly increased, and price is often over bid.
Appraiser is hired by lender, they use older date that cannot reflect current market factors. In Sata Clara, it is common each house(under$500K) has over 20 or 30 offers. The appraised price is not the real value of your property. Please talk to your realtor to get some suggestion. 3% to 5% up down looks like normal range for appraisal report.
MY case: In MIlpitas asking price $507000, 23 offers, sold price $590000, appraisal report shows only $580000.
But the nieghbor's house was sold at $625000 at next block, and280sqft smaller than this one.
REALTY WORLD_BLUE PROPERTY
DRE01702597
408-930-4684
jerryzangrealtor@gamil.com

Thank you all for the answers!! We will confirm with our agent on this matter and update later.

Looking back, we didn't do much research on how much a house would cost in terms of $/sqft in this area when we came up with the price to offer. The house meets all our requirements. Its good floor plan made us overlooked its small size. Now we realized we offered too much because even using the highest $/sqft for the house recently sold in this area, it is still overpriced. The other mistake is the textbook scenario - our heads were pumped up by our agent telling us 'we are competing will multiple offers'.

Whether this whole thing will have a happy or sour ending, I think this will be a good lesson for us. Thank you all again.

Hi Jessica,

it's very difficult to advise you on this matter since we are not able to see the contract. I would recommend that you speak with your Broker and your Realtor first thing Thursday morning and try to get a clarification on this matter. If you're still unclear as to your rights after meeting with them, then I would speak with an Attorney immediately who specializes in Real Estate law. Good luck!

Matt

This is a matter of whether or not you want the home. Don't determine you should back out because of the appraisal. Many appraisals are killing deals right now because of the new regulations that were put into effect. Appraisers that are hired may not know the real value of the home. If you can still get your financing and you really like the house, I would say "why not" A lot of homes in Santa Clara are having multiple offers and the market is improving. You may not find a home that fits your needs such as this one.

I would suggest trying to negotiate with the sellers to reduce the purchase price by $30k, if they will not, maybe $20k, $15k until they bite.

At this point it is up to you. DO YOU WANT THE HOUSE????

Hi Andrea,

Thanks for your input. I checked contract on the financing contingency part. It only stated the loan amount and rate, but no terms on appraisal approval. So we think this financing contingency couldn't protect us in our case.

As to the bank, we know that banks typically won't lend us the money if the appraisals are lower unless we put a substantial down payment to cover the difference. So my understanding is that if we don't have the extra cash to mark up the difference, our loan application will be turned down by the bank and we can use the financing contingency to back us out. But what if we indeed have the extra cash and the bank is willing to lend us the money anyway? In the offer contract, our financing contingency is 30% down, but we showed to the bank in our loan application that we have the cash and want to put 40% down. With 40% down, the loan amount is much lower than the appraised price, so we figured the bank will approve the loan. In this case, we probably have no way out and have to proceed with the contract. :-( Is this correct?

Hey Jessica,

They are all good answers!!! In your "Purchase Agreement," your offer should've included an "Appraisal Contingency" and a "Loan Contingency," unless you opted out of those contingencies. If the Appraisal Contingency was removed before the appraisal than you have another way of backing out. Your Loan Contingency is based on your qualifications AND your appraisal. If the property appraisal was less than your offer based on the loan, you will be automatically be declined by the lender, hence the contingency of your loan approval to obtain the home. You can back out there! But it also allows room for renegotiation. If the seller agrees to drop the price down to appraisal price than you should be good. Your new loan will be repackaged to reflect the new loan amount.

Hope this helps.

Marc Yu

A financing contingency usually includes loan AND appraisal. That's how offers "should be" written. Check with the Realtor who wrote your offer. I would think the seller is now stuck with your appraisal as a material fact and shoud be disclosed to future potential buyers. If their list price is $200k higher, no other bank is going to loan on the property unless buyer is submitting a substantial downpayment or paying all cash. If the seller doesn't trust your bank's appraisal, they may order another independent appraisal. Before submitting an offer on any property, I always check the local comparable sold properties to see if the pricing is reasonable and show the report to my buyer. That way I make sure we aren't paying too much for the house.

Financing contingency also includes Appraisal. You cannot be expected to obtain financing for a house that the appraised value is less than the purchase price.

Made a mistake in my original post - the appraised price is 30k less than our offer price.

As to 'What does our agent say'.. Our agent says that 'approving appraisal report is an important part of financing contingency'. As long as we still keep the financing contingency intact, we got the right to re-negotiate and even to cancel the contract without loosing the deposit. However, we are not very sure about his correctness.

what does your agent say and why wouldn't you have an appraisal contingency?? no agent should be writing offers these days if a loan is required and not include an appraisal contingency.