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FHA Buyer, Home Buyer in California

Bank appraisal, if it comes back lower than our offer will they sell for appraised price?

Asked by FHA Buyer, California Tue Feb 15, 2011

We currently have an offer that was accepted by the owner on a short sale property. The home had a previous buyer walk, that buyers offer was accepted by the bank within one month so we are hoping the bank will be just as quick on this offer. My question is, if the bank appraisal comes back lower than our accepted offer, will the bank renegotiate the sale price? We've been told the bank has ordered an appraisal, I know all transactions are different but is there any approx. guideline in terms of the time frame for this to be completed? We really love the home and want to know if we do try to renegotiate a price in that situation, will we run any additional risk of this transaction not being completed? On the other side of the coin, if the appraisal is higher than we offered, will the bank counter us? Thanks so much!

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Hi Frustrated FHA;

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!
1 vote Thank Flag Link Wed Feb 16, 2011
Dear frustrated,
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.
Web Reference: http://firsttimehome.us
1 vote Thank Flag Link Wed Feb 16, 2011
I believe you are referring to the appraisal done on behalf of the lender for YOUR loan. If so, get a copy of the appraisal to be submitted to the lien holder that has previously approved the short sale. If the appraisal does not have deficiencies (errors) and is presented properly the lien approving the sale will most likely reapprove based on the appraisal. If there is a wide variance or if it appears the appraisal was directed to a lower value it could take more work. Might I ask, at the time you made the offer, did your agent provide you with comparable and were aware of the lower values?
1 vote Thank Flag Link Tue Feb 15, 2011
If the short sale lender is the party ordering and completing the appraisal prior to approving the short sale, the appraisal is being done for the valuation and determination of what the bank is willing to accept for the short sale. You will probably never know the result of that appraisal unless the short sale lender counters your offer for a higher amount. If the appraisal done for the purposes of the buyers lending does not meet the offer amount then A buyer can try to get a reneogtiation of price but it is not a guarantee and the seller can request the buyer to pay the difference or blow deal.

Garrigus Real Estate
Coldwell Banker Kivett Teeters
(888) 9-LIST-IT
1 vote Thank Flag Link Tue Feb 15, 2011
I have been doing short sales for a while and the things can go both ways.

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 .

Hugo Sanchez
http://www.SanDiegoHouseShop.com
1 vote Thank Flag Link Tue Feb 15, 2011
Frustrated - you've made an offer on the most "frustrating" type of property possible and it may turn out to be a fantastic deal. Unfortunately, from what I've experienced the one thing that can be said about short sale transactions is that they are wildly inconsistent. Even the same bank/seller will handle short sales inconsistently.

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. :)
1 vote Thank Flag Link Tue Feb 15, 2011
I am not an expert in short sales, but in a typical transaction if the appraisal comes in lower than the contract price then you have a few options. Your bank is not going to give you more money than the house has appraised for (or is worth). This means you need to go back to the seller and renegotiate the price. If the buyer and seller cannot renegotiate a new price either at the appraised value or below then the buyer usually has the right to retain their earnest deposit and walk away. It would be best for the seller to settle on a new price because chances are all appraisers will have the same result. I hope this helps and good luck!!!
1 vote Thank Flag Link Tue Feb 15, 2011
FYI: Your loan will be based on the appraised value or the purchase price, whichever is lower. .... Happy funding, Rudi
Web Reference: http://www.umboc.com
0 votes Thank Flag Link Wed Feb 16, 2011
To answer the questions posted this is the BPO that was ordered, my mistake in using the term 'appraisal' but the answers definately help me knowing options if/when we get to the FHA appraisal. The previous buyer walked after bank acceptance. Our offer is comparable to comps in the area, 10k higher than the previous buyers offer and also includes $$ for the 2nd. Within 2 days of it being accepted by the owner the 1st ordered a BPO and the 2nd was in valuations. Seems to be moving quickly which is positive news for us since the last short sale offer we had accepted did not go through after 6+ months.
0 votes Thank Flag Link Wed Feb 16, 2011
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