The only other suggestions I may offer are; to go back to the appraiser and find out which comparable property sales he used as a basis for his appraisal and present them to the bank for a review of their value estimate. Due to the current mortgage crisis, lenders are being extremely conservative in their estimation of value. It is possible that the bank is including distressed sales in their estimates, which would not be a true indication of value in the area.
My last suggestion would be to go back to the seller and renegotiate the deal. If indeed the lenders are right in their estimate of value, then the seller is going to have to reduce his price regardless, or no one will be able to purchase the home and obtain financing.
There are many variables that can impact whether or not you can get your earnest money back. First, I assume you and your agent used the CREC contract (if you are using a real estate agent then you are). Second it depends on what the "Loan Conditions" deadline is. If your loan conditions deadline has passed already then you would likely lose your earnest money. If you are not using that contract at all then you would need to speak with a lawyer.
The real question though is What amount did the lender say they would loan you in the first place? If your original contract is for $281K as the purchase price and a lender said they would loan you an amount (minus the 20% you say you can put down) why did they change their minds? Also, the appraisal is ordered by the lender, by an appraiser hired by the lender, so why would they not trust the opinion of the appraiser? I would investigate what the lender is up to. If your facts are correct above then something sounds fishy with the lender.
Best of luck,
If you have an agent, ask them to check comps again (I assume they did that when you made the offer). They should be able to do that for you very quickly. If you were about to pay too much, I'd say breathe a sign of relief that you didn't overpay and move on.
You also might contact the appraiser and see what they have to say. If they stand behind their appraisal, you might still be able to work it out. If they don't stand behind their appraisal - I can see the red flags flapping in the wind.
If you don't have an agent, I'd be glad to look at the comps for you, and the appraisal. You should have a copy of it, it's your right to have a copy of it.
As far as getting your earnest money back, since you said this all happened the day before closing, we must now be past the closing date, and there's no contractual obligation for your earnest money to be returned. Sometimes, people will give it back out of a merciful and understanding heart (I've made it happen for my clients more than once). Ask your agent to at least give it a try.
Sure. You can always pick a different (competent) lender. Try calling Mary Steinmeyer with Mountain Crest Mortgage off: 720-339-0526, ho office = 303-738-1023. She is great to work with.
I assume you're not represented by a Buyer's Agent and are not using the Colorado Real Estate Contract. If you were using that, there is an appraisal contingency clause in the contract that allows you to notify the seller by an agreed upon date that the home didn't appraise for the sale price. If you notify the seller in writing by that date that the home didn't appraise, the contract allows you go get your earnest money back. However, if you're not working within the confines of that contract, the seller doesn't have to return the earnest money. You also have the option of re-negotiating the price with the seller based on the appraisal. You have this option whether you're working within the confines of the state contract or not. The Seller will likely run into this same situatuion with another buyer, so they may be willing to negotiate.
It sounds like the home is over priced and if you'd been represented by a buyer's agent, which costs you nothing, they would've looked at comparable recent sales and counseled you on what to offer the seller.