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.
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.
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!
(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.
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!
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!
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.
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.
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.
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
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.
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).
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.
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.
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!
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.
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!
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.
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
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.