Home Buying in 90230>Question Details

Christine, Home Buyer in Los Angeles, CA

What happens when the appraisal comes back less than the purchase price?

Asked by Christine, Los Angeles, CA Tue Mar 25, 2008

Will my loan not go through? It is $12K off. Thanks in advance for the replies!

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Answers

34
Unfortunately Todd is incorrect on a few comments. The so called "idiot appraisers" are not allowed by law to personally inspect the interior or even set foot on the property of comparables. They are forced to rely on a visual street view and a lot of misinformation and lies that some greedy agents put on the MLS in their effort to con buyers into purchasing overpriced properties to increase their commissions.

His other option 1) to ask the appraiser to increase the value by $12,000 falls under the catagory of coersion and/or undue pressure of an appraiser which in most states (including California) is a Felony. Also the regulations appraisers are required to abide by prevent them from discussing any appraisal with anyone except the client who orderd it.

His advice on option 3) puts one in a position of being an accessory to mortgage fraud and a co-conspirator to appraiser coersion.

Hi comment - "A good mortgage broker will use an appaiser that actually knows the area and may have actually seen a few of the comparable sales." - means that some brokers have appraisers in their back pocket willing to falsify and prepare a misleading report (appraisal fraud) in order for the deal to work in an effort to gain more business from that broker - again satifying the greed of those with a vested interest in the outcome.

There have been several good suggestions by others with obvious better ethics.
8 votes Thank Flag Link Wed Mar 26, 2008
Hi Christine !

The lender will definitely not finance the property if it is under the appraised value. This means that the seller has overpriced the home and should reduce the sales price in order to make the deal work. Mortgage lenders use their own list of appraisers so they will not request a second appraisal.
6 votes Thank Flag Link Wed Mar 26, 2008
Obviously the property was overpriced to begin with. The seller and their agent would not disclose that fact and apparently you agent (representing your interest) would not either. You are lucky your lender hired an appraiser with ethics that would not inflate the value just to make the deal to go through. I would recommend using that appraisal to get the seller to reduce the selling price down to the actual value of the property if you still want to purchase it. If you pay the difference you will be in an upside down mortgage instantly when it closes.
6 votes Thank Flag Link Tue Mar 25, 2008
Rather than going through the motions (and time) of seeking another appraisal, reduce your offer to the appraised value (presumably, your contract stipulates that the house must appraise for the purchase price). In a buyers market, there is absolutely no reason to pay more for a property than a current appraisal indicates. Walk if they won't bring the price down- the value they've lost is simply not your problem. Your real estate agent should be counseling you on this- what do they advise?
Web Reference: http://optionsrealty.com
5 votes Thank Flag Link Wed Mar 26, 2008
Hi there! I haven't read the other answers, so I might be repeating someone else:

In our State, this would be my take on it--

My first advice is to ask the Seller to reduce the price to meet the appraisal. Oh! They hate to hear that. They can then challenge that appraisal, and pay to have it appraised themselves.

It could be that the Listing Agent has been telling them to lower the price all along, but the Seller isn't believing the comps in the falling market. It could be that the appraiser has made a mistake in square footage somehow(this has happened to me.)

Did your agent pull comps for houses when you were deciding what to offer? Have you been looking at homes, and feel you have a handle on what comparable values are?

IF the Seller doesn't want to come down, then the question is Do You Still Want the house, and how badly? 12k? will the Seller meet you at $6K Can you come up with that cash to close the sale?

I also think, don't be in a hurry to put cash into it, unless you'll absolutly die without this particular house. Ask the Seller to reduce, and see what the response is.

Best wishes, and let me know what happens!

Linda
4 votes Thank Flag Link Mon Mar 31, 2008
Question to Todd Miller and those like him: There is only one thing that ticks me off more than an Appraiser that thinks he's a Realtor and that's a Realtor that thinks he's an appraiser. Show us your Appraiser's license...... humm..... yeah, that's what I thought.... one other thing. If you high and mighty Realtors think your such hot sh?t, try this one on. You can get a mortgage without a Realtor but you can't get a mortgage without an Appraiser. I wonder how many homebuyers who are now upside down are thinking about suing the Realtor who represented their best interest at the time of purchase! Go back to managing Denny's Todd. Leave the home sales/appraisal business to people that know what the hell the're talking about.
4 votes Thank Flag Link Thu Mar 27, 2008
You need to understand a few things regarding a real estate transaction that involves ANY lender:

(1) Realtors, mortgage brokers, loan officers and lenders ONLY get paid if a loan closes and therefore ALL are biased toward the appraisal "making their number". That loan doesn't close and NOBODY gets paid. Therefore, their opinions of value are subjective and worthless to a legit lender looking for a true "market value."

(2) That is the reason for using independant and non-biased, ethical, professional real estate appraisers. Appraisers are paid their fees regardless (as are others like real estate inspectors) and therefore are COMPLETELY objective regarding the opinion of value.

(3) Bottom line is that I have come across HUNDREDS more unethical, unprofessional and inept real estate agents, mortgage brokers and loan officers than "idiot" appraisers. Any reasonable real estate professional will agree 100% with that statement.

Appraisers provide a necessary SERVICE to the transaction, brokers and loan officers are trying to SELL something.
4 votes Thank Flag Link Wed Mar 26, 2008
Christine....

Sorry to hear about the short apraisal. Here are the options as I see it:
1. you do not have to buy as long as there is an appraisal contingency in the contract
2. the seller does not have to sell
3. the seller can come down to the appraisal price
4. the seller and yourself can renegotiate a new sales price
5. you can put some cash into the situation
6. a new appraisal can be ordered

Due to the current mortgage crisis they are discounting the appraisals 5% in certain high risk areas. Your property may fall into this. The property may or may not have been overpriced!
3 votes Thank Flag Link Tue Mar 25, 2008
Pam Winterba…, Real Estate Pro in Danville, VA
MVP'08
Contact
Hi Christine,

There is a fourth option.

Pay the difference out of your pocket. The bank will only loan you the value that it is appraised at, but you can pay the difference if you choose to.

In all likelihood, though, Monique's 3 options are better!
Web Reference: http://www.OwnGR.com
3 votes Thank Flag Link Tue Mar 25, 2008
Todd wrote: "If someone offers you $1,000,000 for your house, that is what it is worth."

That's laughable and it is apparent that you need a few BASIC real estate appraisal courses, dude.

Just because "someone" offers $1,000,000 that doesn't mean JACK as far as the property having a "market value" of $1,000,000. It means ONE PERSON thinks its worth $1,000,000 and it MIGHT be, to THEM. They could own an adjacent property, it could be a neighbor they simply want to get rid of or any number of personal reasons but it DOES NOT mean the property is worth $1,000,000 to "the market."

That is why professional real estate appraisers are relied upon for an UNBIASED opinion of market value and banks/mortgage companies don't rely on "Todd the Realtor" for his opinion of value on their collateral.

And BTW, if your guy wants to pay $1,000,000 for the property and the appraisal says it's only worth $800,000 there is NOTHING keeping him from buying it anyway. It is called PAYING CASH.
2 votes Thank Flag Link Mon Mar 31, 2008
My basic problem with appraisals is that I believe in capitalism.

If someone offers you $1,000,000 for your house, that is what it is worth.

If you don't believe this, then look at the whole idea of comparables. Consider the home that I sold for $1,170,000 that appraised at $880,000, the day we closed at $1,170,000 that became a comparable sale for other properties. That means that the very appraiser that appraised the property for $880,000 could come back two weeks after the closing and use the sale price of $1,170,000 to value other properties.

I understand that banks want to protect themselves and that appraisers serve to protect the interest of the banks, but in a truly free market, a home is worth what is offered. In an all cash offer, there are no appraisers.

FYI- Working at Dennys doesn't sound so bad. "How would you like your eggs? Do you want butter on your toast?" I'm going to go get an application. I hope to see you next Sunday brunch.
2 votes Thank Flag Link Mon Mar 31, 2008
So it is bad advice to use an appraiser that knows the area?

If that is the case why not use a realtor from Colorado to help you buy a house in Florida?

It is not unethical to talk with an appraiser about value. Lenders can and do adjust value on a regular basis. Maybe the appraiser used a comp not knowing that the home needed foundation work or that the seller gave a $25,000 credit for repairs.

You make it sound like the appraisal is some infallable document. It is someone's opinion of value based on a few sales cherry picked out of sometimes hundreds of comparable sales.

I recently had an appraiser undervalue a home by using comparables that were tear downs as similar sales. The sale price was $739,000 and the apprisal came in at $660,000. Of course the buyer was upset, but we explained that the appriser was an idiot that did not know the area and that he used properties that were not similar and that he did not properly adjust for condition. We asked an appraiser familiar with the area to review the appraisal. This appraiser took the time to call the agents of the sales the first appraiser used and he found that a number of the sales used had serious issues that caused them to sell for less money.

All I am saying is that appaisals are subjective. I think getting a second opinion is smart.
I don't think that makes me unethical.
2 votes Thank Flag Link Wed Mar 26, 2008
You, the buyer, is not obligated to buy - no matter what the LTV is. However if you like the home then just continue. You may be able to renegotiate with the seller. The seller may request another appraisal of which the bank may or may not accept.
2 votes Thank Flag Link Wed Mar 26, 2008
wait a year or two
it will be cheaper

anyways

good luck
2 votes Thank Flag Link Wed Mar 26, 2008
If the appraisal comes in too low, this opens up the renegotiation period, the homeowner will not be able to sell this property for more than the appraised value price unless a cash buyer comes along. If you have a Realtor assisting you, which I highly recommend, they will be able to easily help you through this. Here are your options:
1. Sign an addendum to lower the purchase price to what the appraised value is
2. Pay out of pocket the difference
3. Walk away and find another home-which I wouldn't recommend for such a small difference in price

Best of Luck!
Heather Paul, Realtor
Coldwell Banker
310-586-0364
1 vote Thank Flag Link Mon Oct 3, 2011
This is really a question for a loan officer, but ill take a shot at it..

Your lender will only have a secure investment if the property is worth more than the loan amount. Ideally they would want to only loan 80% loan to value b/c if you miss payments in the future and they are forced to foreclose, they need a decent buffer to sell fast, pay an agent, and cover all the missed payments and attorney fees. You might have to put more money down or contact a loan officer and see if they have a package available for you. OR if you think the appraisal is wrong, you can try to get the bank to get another one done.

Thanks,
Phil
Friendship Properties
http://www.friendship-properties.com
1 vote Thank Flag Link Sat Apr 12, 2008
christine
pay cash for the house
then no more problems
so what if its off 12K

anyways

good luck
1 vote Thank Flag Link Mon Mar 31, 2008
wait
that appraisal is out of date this week
housing prices dropping a few thousand a week in parts of CA
be patient
whats the hurry
lots of foreclosed houses
lots of people trying to sell houses
take your time

anyways

good luck
1 vote Thank Flag Link Mon Mar 31, 2008
JR,

1. Enough of the gross generalizations. Not ALL Realtors are one thing or another. I turned down 2 paychecks last year BY CHOICE! I am not personally ruled by money. Do you consider yourself greedy at the end of the work week when you pick up your paycheck for the work you performed?

2. Get 3 appraisals from 3 different appraisers without telling any of them that you are doing so. You will get 3 different results. Which of those 3 is correct? The highest, the lowest, or None of them. Good question, right?

Finally, This home may well be overpriced, who knows. I am sure that Christine is well represented by an agent who is taking her interests seriously (As they are required to do so by law).
Web Reference: http://www.OwnGR.com
1 vote Thank Flag Link Thu Mar 27, 2008
With today's mortgage issues and the banks & appraisers being so conservative, it is very common for the appraisal to come back less than the purchase price. I would say half of my recent sales in Culver City have sold for over the appraised value.

Personally, I believe the appraisal process is a flawed process. I have had a number of problems with appaisers that do not know Culver City who come in and undervalue property. It is such a subjective process. These guys come in that don't know the area and they pick 3 recent sales that they have never seen the inside of and they use these comparables to value a property. Last year I had an appriaser value a home at $1,170,000 only to have another appriaser value it at $880,000. If there was any validity to the appraisal process, then you would not have that big a discrepancy.

You are a smart person. You have been looking at home sales in the area. You reviewed comparable sales before you made your offer. Therefore, it is my belief that the home is worth what you offered. Just because some idiot appraiser came in $12,000 under the purchase price does not mean you are overpaying.

The problem is that the lender is going to base the loan amount on that appraisal. So if you are getting a loan for 80% of the value, that means that you will have to come up with more money to make up the difference for that $12,000 discrepenacy, IF you want to keep that appriasal.

There are other options:
1. You can call the lender and ask the lender to evaluate the appraisal and ask the appraiser to raise his value by $12,000.
2. You can offer to pay for a 2nd appraisal which would cost $300-$500. If you are using a direct lender like Bank of America, this may not be possible because they use in-house lenders.
3. You can tell your lender if they don't rectify the $12,000 discrepancy, you are going to go with a different lender.
4. If they don't increase the appraised value, I would tell the seller that you either want a price reduction or more time to bring in another lender. You may need to extend escrow, but you are within your right to cancel the agreement now that the appraisal has come in below the purchase price (as long as you have not already removed your loan contingency). So you have the power. You can try and re-negotiate over price, but if the seller won't budge because he knows the appraiser was an idiot, then you should just start the loan process over would a good mortgage broker.

A good mortgage broker will use an appaiser that actually knows the area and may have actually seen a few of the comparable sales.

Don't let the discrepancy effect your opinion of the property. If you are concerned, ask a local appraiser to review the appriasal. Your appraiser may not have adjusted for the property's condition and may have used poor comparables.
GOOD LUCK!
1 vote Thank Flag Link Wed Mar 26, 2008
I just had this happen to one of my buyers, Christine. It can be negotiated. Have your realtor contact the appraiser. Find out why they didn't agree with your purchase price. Then contact the lender. Have your agent send them some comparable prices in your area. Lenders are wary of home prices and want to be sure that their clients aren't paying too much. But some lenders are over protective.

In this day and age we Realtors are working harder than ever to make transactions work. It is not unusual for appraisals to come in low. It is the pendulum swinging back from appraisals that came in high in the seller's market. Your agent will have the materials to prove that your are paying a fair price.

Remember, if your purchase price comes in much lower than the rest of the community, you will bring prices down in the whole neighborhood, which then reduces your equity right off the bat.

Good luck!
Mary
1 vote Thank Flag Link Tue Mar 25, 2008
Hi, Christine. I had this happen recently on one of my listings. I looked up the comps and I made a list of all the improvements and other reasons why I knew this property should have appraised at least at value. I told the lender to let their appraiser know that I was sure I could have another appraiser bring this in where it should be (you need the facts to back it up). The appraiser took another look at his work and revised the appraisal to what it should have been in the first place.

The other thing you can do is meet the seller in the middle - split the difference. Have your agent pull recent comps for the area and tell him/her to go to bat for you to save this deal!

All my best!
Web Reference: http://www.DotChance.com
1 vote Thank Flag Link Tue Mar 25, 2008
Hello Christine,

If the appraisal comes back less then the purchase price you have three options. You can try to get another appraisal. You can ask the seller for a reduction in the purchase price or you can walk away.
Good luck on your purchase! My advice is to try to get the lender to agree to a second appraisal.

Best,

Monique Carrabba
1 vote Thank Flag Link Tue Mar 25, 2008
Dear Christine,

Your loan will not go through and if the appraisal comes back that low, then something has to be "worked out" between the seller and the buyer or the sale will not complete. In some neighborhoods, the demand is so strong, the appraisals are often lower then what the home sells for.

Make sure your Agent runs a good CMA for you before you make an offer on a home. You will know right away if the house is overpriced or not.This way you can avoid the disappointment and stress.

What normally happens when a home does not appraise is that the seller will lower the price so that they can sell, other times the buyer will pay the difference or they will split the difference.


Your Realtor will help you through the process. Remember the loan is one of the contingencies that protects you during the sale. If you are not able to get a loan, you can cancel the sale.
Best of Luck to you!
0 votes Thank Flag Link Mon Mar 30, 2015
If I'm the seller and I think my house is worth more and the appraisal came in low can I walk away from the transaction?
0 votes Thank Flag Link Wed Mar 25, 2015
If you are the seller and you do not want to negotiate the price at all, you will probably lose the sale anyway, because the buyer will not be able to get a loan fo the amount you want.
Flag Mon Mar 30, 2015
If I'm the seller and I think my house is worth more and the appraisal came in low can I walk away from the transaction?
0 votes Thank Flag Link Wed Mar 25, 2015
Hi can I not sell my house if the appraisal came in to low do I have the right to not sell
0 votes Thank Flag Link Wed Mar 25, 2015
If you are in Love with the house and know from what you've seen on the market you can pay the difference after negotiating the price down as much as you can.
0 votes Thank Flag Link Mon Jul 30, 2012
can a buyer get a PMI if the house is apresied lower than the asking price?
0 votes Thank Flag Link Sun Apr 22, 2012
selling house for 100,000 and aprasiel comes back for less can I still get what I'm asking.
0 votes Thank Flag Link Sat Apr 21, 2012
Hi Christine,

I just had this happen with buyers on a short sale. The solution we came up with was to send the appraisal to the seller's lender & have them reduce the price. The appraisal was $16,000 less! The bank (seller's lender) agreed to a price $11,000 lower.

The buyer has had to come up with the extra $5,000. Since they are getting a great price, the buyers agreed to it.

Again, this is the solution we came up with and all parties agreed to it. The key is all parties agreed. If you can't come to an agreement or the seller won't reduce enough to make up for the difference, ask your agent & their broker what the next best step is.

Best Regards,

Kim
0 votes Thank Flag Link Mon Nov 8, 2010
in this market, you say come down or walk, there are a million other homes that are foreclosing everyday!!! It is a truly a buyers market, best time to buy its now!!!
0 votes Thank Flag Link Tue Sep 22, 2009
Todd The Realtor wrote: "Last year I had an appriaser value a home at $1,170,000 only to have another appriaser value it at $880,000."

Hey Mr. Used House Salesman, how much would is that $1.17 million dollar house, err $880,000 house worth TODAY?

I'm guessing about $500K. Sorry about that.

Maybe you ought to return to "restaurant marketing" whateverthehell that is...LOL
0 votes Thank Flag Link Sun Apr 13, 2008
---Quote from Todd Miller--------------------------------------------
These guys come in that don't know the area and they pick 3 recent sales that they have never seen the inside of and they use these comparables to value a property. Last year I had an appriaser value a home at $1,170,000 only to have another appriaser value it at $880,000. If there was any validity to the appraisal process, then you would not have that big a discrepancy.
------------------------------------------------------------------------------

But it's not just appraisers who have such discrepancies in valuation. I've come across several realtors who also come up with gross discrepancies. Although this could be pressure from the seller. My problem with your comments is you unfairly target appraisers. If you took a step back to look at the criteria of what makes appraisers flawed, you would find that real estate agents and the entire process is also flawed.

So an appraiser picks 3 comps that differ from what you would pick. Picking comps is also subjective because you may be picking expensive comps to support your high pricing. An appraiser may pick across the board comps which upset your commission.

I do happen to agree with you on the merits that appraisals are slightly flawed, but so are agents and brokers. Your poor wording (which does make you sound ethically questionable) is what makes people stereotype realtors as sheisty.
0 votes Thank Flag Link Sun Mar 30, 2008
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