The lender will only lend on the value of the appraisal or the offer price which ever is less. If you offered more than the appraised value, you may need to do more homework. It means that you offered above the comparables. Did your agent pull the comparables for you?
Hopefully you had a loan or appraisal contingency. If you did, use this as an opportunity to do your homework. This may be a deal that you want to get out of.
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Big problem this week is lots of lenders just decided to put in a deceleration clause - stating that declining market conditions exist and 1) appraisal should be x% lower, with another y% decline each 30 days prior to close.
Here are the five options if the appraisal is lower than the sale price:
1. Re-negotiate the purchase price with the seller. .
2. Walk away from the purchase.
3. Appeal the appraisal and/or get another appraisal
4. Seller carry back a second trust deed in the amount of the difference.
5. Put more money down to make up the difference.
As a listing agent I always meet the appraiser at the property and give the appraiser comparable closed sales to substantiate the sale price. Many appraisers are from out of area and welcome the information and help. I follow up with the appraiser approximately three later to answer questions and verify that the appraisal did come in at the sales price.
"Doing Real Estate Right"
If the appraisal then comes in much lower than the negotiated price, get a second opinion after you have exhausted all other avenues like checking out the criteria and /or submitting your comps and other any data you have that is relevant, like the survey, sq. footage, etc.
The answer depends on several factors, including but not limited to the following:
1) How much is the Buyer putting down on the property? This is a primary factor.
2) Does the Buyer still want to buy the home and does the seller still want to sell it to them?
3) Do the Real Estate agents involved in the transaction feel the appraisal is accurate, and would another lender possibly appraise the property for a higher amount? Getting another appraisal may help.
4) How much is the disparity in the contract price and the appraisal? Is it $5,000 or $50,000?
5) Is the home so unique (or special) that true comparables are hard to find?
... We will start seeing this trend occur more frequently, as more and more buyers are finding homes to be "affordable" again and multiple offers are being submitted. There is a box on the appraisal form that is regularly checked off, indicating the home is located in a "declining market" (i.e. Ventura County) -- and values are bumped down 5% as a result. This gives the lender a little extra cushion to weather the anticipated future decline, if any, in area-wide home prices, Ask to see the appraisal. Since real estate is all negotiable, either the seller can reduce their sales price, or the buyer can kick in more money or there is another option. If the lender on the first mortgage will allow it, the seller can ask the buyer to sign a secured note (second mortgage) at either 0% interest or "maket rate" interest or somewhere in between. This, to me, is the best win-win situation. The seller eventually gets their contracted price and the buyer gets their home of choice. Since the buyer was planning to pay the higher price (offered) anyway, they should be willing to incorporate a private-party second mortgage.
I am actually representing a seller on a home that had 7 offers, and 2 were over asking price. The appraisal came in under the contract price, so both parties agreed on a new compromised sales price. A seller in today's market should be happy to get at least the appraised valued for their home. Far too many have listed their homes beyond the current appraised value. It's still a buyer's market, so you that as leverage in negotiating the final price you pay. Good luck in getting the deal to close escrow!
Eric is right. Please review your contract with your agent re your appraisal contingency and renegotiate your price with the seller reflecting the appraised value or else you have to come up with the difference between the loan based on the appraisal and your agreed-upon price with the seller.
The reason for this is simple. Let's say you are geting a loan to buy a house, and the bank agrees to give you a loan of 80% of the value of the property. You make an offer of $125K. When the appraisal comes in, it only values the house at $100K. That means the bank will only lend you 80% of $100K, or $60K. You will either have to come up with an extra $25K, or negotiate the price of the property down to what you can afford, given an $80K loan.
I hope that helps.