More than likely the lender will not give you the loan if the property does not appraise out. This is especially true if you are going with government financing (VA or FHA loan). If you are getting a conventional loan with a substantial downpayment and the loan to value is there than the bank could still give you the loan.
However, it sounds as though you are going minimal money down therefore there are several things that could happen. The seller could reduce the price of the house (which is what they should do since they could have the same problem with another buyer. If you went with a vA or FHA loan than that appraisal will hold for that property for several months or more ( I believe it is 6 months but you will have to ask your lender.If the seller does not reduce the price and you cannot make up the difference financially than the contract will fall through.Hope it works out but it is in the sellers best interest to reduce the sales price to the appraised value. Good Luck!Donna
Appraisers are often only required to conduct exterior inspections of properties that are being used as comparables because they do not have access to the interiors. We all know that distressed properties often have serious issues related to deferred maintenance or internal damage that an external inspection simply cannot reveal...the exterior tells only half of the story...if that.
If your appraiser used distressed sales as comps then ...they are not true comps.
I heard the other day that some appraisers are using foreclosures as comps, but foreclosures are not a valid means of obtaining true market value, and cannot be used. If you find that foreclosures were used, I would demand another appraisal. If the weren't, then demand a lower price!
Banks would never fund a home, especially now, that didn't appraise, and you shouldn't have to either!
The ball is totally in your court on this deal.
With the huge amount of inventory out there it shouldn't be hard to get the deal you want.
I assume your financing? The contract will have a back out clause if the home does not appraise.
Show the bank your appraisal and ask for the discount. If they refuse then refuse to close and start shopping for another home. Sounds like you can buy even more house than the one you were looking at for the money you are trying to spend.
What a buyers market and it's wonderful to be able to buy these homes at such low prices. Take full of advantage of this great time in your life.
You have two options available to you, assuming that you really want the home and would prefer not to cancel the sales contract: 1) Ask the bank to lower the price by $7,000 or 2) Find a new lender quickly and have another appraisal completed.
One of the problems we're finding under the new HVCC (Home Valuation Code of Conduct) rules instituted for all appraisals done for Fannie Mae and Freddie Mac financing is that appraisals are coming in lower than expected due to the rigorous requirements in the appraisal as well as the lack of local knowledge of many ofthe appraisers ocnducting the review. The HVCC does allow buyers and realtors to request Appraisal Valuations (a revew of the appraisal by the appraiser to see if the figures are correct, and at that time, your Realtor may submit comparables to the appraiser that might increase the value), but I've not yet seen a single appraiser agree to reevaluating his/her report or the price values.
If the appraiser refuses to change the appraised value, your other option is to change lenders as this will allow you to have a brand new appraisal with, hopefully, a more skilled appraiser who will include more accurate or higher values for review.
The other option is to ask the bank (home seller) to reduce the price of the home so that you may obtain a loan on the property. Unfortunately, I've found that banks are neither sympathetic nor cooperative during REO sales, so it may be that your request for a price change will be turned down--however, you won't know that until you try. Have your Realtor contact the listing agent for the home, and request a change to the price.
Grace Morioka, SRES, e-Pro
Area Pro Realty
San Jose, CA