You actually have two questions. 1) Yes, if you have a short sale or an REO, the selling bank will want as much as it can get for the property. So, for example if the prior offer was for $200K, there is a very good chance that the bank will want the $200K. 2) The bank representing the new buyer will go off of the appraised value (assuming the new appraisal comes in at the same amount as the previous appraisal from the previous buyer that walked away) to make it's determination of the amount to loan the client. So, if the appraisal came in at $180K, then that is the figure that the bank will use to determine the amount they will lend. If based on your title, you are using FHA financing, the bank will loan on 96.5% of the $180K, plus 1% of the up-front mortgage insurance, or $175,437. Therefore, if the client really wants that house, they will have to come in the difference, $24,563. If the selling bank chooses, they can, and at time do, 1) hold out until a buyer comes along that is willing and able to come up with the difference. Or, something that we are seeing more and more of lately, 2) the bank will counter the new buyer to seeing how high they can go.
Good luck with your new purchase!
The appraisal that directly affects you is the appraisal for your FHA loan. The "bank's appraisal" for their benefit is irrelevant as far as your FHA loan is concerned.
If your FHA appraisal comes in less than the sales price, there are three options:
1) lower the price to match the FHA appraisal
2) Negotiate a new price (you'll have to pay the difference in cash if higher than the FHA appraisal)
3) You can walk from the deal
That being said, the FHA appraised value is tied to that property for three months (used to be six) so it behooves the bank to accept that value if it truly wants to get out from under a potentially toxic asset.
It's your appraisal and your loan, so the bank is not entitled to see it unless you allow it, should it come in higher.
Good luck with this, based on your questions in this forum I know you've been at it a while.
Garrigus Real Estate
Coldwell Banker Kivett Teeters
The appraisal on a short sale situation is so the bank gets an idea of what they are selling, the area and it's surroundings.
Did your Realtor gave you a CMA (comparative market analysis? before your offer was sent to the seller) this will give you in short an idea of what the prices are looking like in that area, also if the seller had a buyer walking, in which stage did the buyer walk at? did they had approvals already if so the the seller agent should have an idea of what the bank wants, if not then the short sale is just in the beginning stages.
Now as I said before things could go both ways.
1. Appraiser values the house higher that list price:
You will get a counter offer from bank, if you feel comfortable with it then you can accept the counter and you should be ok. Have your Realtor always look out for anything that maybe out of the norm.
2. If the price comes lower you or your Realtor will never know, short sale banks never disclose (they are not required to do so) the price of their appraisal. They will just move on with the sale and that is pretty much it.
Where you need to look at is If your bank's appraiser comes back lower.
You may ask why? because then you need to either renegotiate the terms (something really hard to do because you have agreed to the terms and conditions since the beginning, but it is hard but not impossible), I say that because your Realtor will need to do a lot of leg work and he needs work with your lender to justify the sales price.
If in the attempt the sellers bank declines the lower price and you still want the house then you can pay the overage together with your down payment and closing cost at closing of escrow.
I recommend you to look at all your counters and addendum(s) if any and see what you have agreed on. It's very important that you are aware of what you are signing.
I wish you good luck and hopefully all works out great for you and your future new property .
I'd put the possibilities out of your mind until the appraisal comes back because there's really no way to react to it ahead of time.
If the appraisal comes in low you may have no choice but to negotiate a lower price unless you have the cash to close the gap - the lender you are working with is going to base their loan off the lower of the sales price or the appraised value.
if the appraisal comes in lower why would you not want to risk your transaction by negotiating a lower price? The appraisal report is there to make sure you don't pay more than the home is worth.
True, if you really love the home it may make sense to pay over the appraised value - the best person to advise you on whether that action is likely to cause the bank to reject your counter-offer is the agent you are working with. They should have a good idea of how short sale negotiations are handled in your area.
Good luck and we'll keep our fingers crossed the appraisal report comes in just where you need it to. Some of these do go through just fine. I had a past client in Davis, CA that got her home sold on a short sale, closed in less than 60 days, AND got her $3k in move out money. That's the only "good" short sale story I've heard but I'm sure there are others. :)