Appraisals have become a huge problem! Lenders have become more cautious and often order more than one appraisal. Appraisal rules have changed due to misguided, if well-intended, new federal requirements. In your case, the buyerâ€™s lender is giving more weight to the lower appraisal and this is killing your sale. Do you know why a second appraisal was required? Was there a problem with the first appraisal?
Yes, you agreed to the higher sales price so you are not required to reduce your price and sell at the lower value shown by the appraisal. But, what are your alternatives? Will the buyer cover the difference, if possible, between the former appraisal and new appraisal? If not, you can lower your price or you can seek a new buyer. If you get a new buyer you have no idea what the next appraisal will show for the value of your house! Did your existing buyer release contingencies? If so, what are you going to do about that?
Have you asked all of these questionsâ€¦and moreâ€¦of your agent?
A eerily similar situation occured with my client who was using Quicken Loans. The lender's first appraisal came in low--about $40K less than the sales price, and then a second "check" appraisal was done and it came in a further $70 less than the first appraisal. When I questionned the loan officer, he told me that the second appraisal or check of the first appraisal was done as part of their company's regular procedures beginning on June 1, 2009. However, we found a loophole with this particular lender--if the home buyer has put down more than 20 percent (even if that overage is only a few hundred dollars), then the loan company MUST use the first appraisal and the second value does not count.
If the buyer put down 20 percent on the original amount of the loan, and then the sales price was lowered, automatically there is more than 20 percent down payment on the property. My suggestion is that your agent ask the buyers to check with their lender to determine if a similar clause exists in the loan documents. Of course, only your buyers will know if the lender agrees to use the first appraisal.
In the meantime, since the price has changed on the appraisal, you have several choices, which I'm certain your Realtor may already have explained to you. Essentially, if you choose not to sell your home for $85K less, then you may certainly cancel the contract and find another, hopefully, more qualified buyer. Otherwise, the option is to lower the price again--however, before doing that, talk to the lender and find out if the 20 percent down payment I noted above will provide you with any reprieve.
Grace Morioka, SRES, e-Pro
Area Pro Reatly
I would recommend that you consult someone qualified to give you legal real estate advice. This scenario is more common that you know. The bank can order new appraisals if someone looking at the loan has concerns about the market value.
Our only question would be "who ordered the first appraisal"? Was it the buyer's lender or another party?
We wish you the best in resolving this situation.
Mark and Kari Shea
San Diego Real Estate Experts
Foreclosure, Short Sale & Investment Specialists,
Development Opportunities & Traditional Real Estate