Marley88, Home Seller in Spring Valley, CA

Can a lender renig because a second appraisal came in lower than the 1st appraisal that the sale was based on?

Asked by Marley88, Spring Valley, CA Tue Jul 7, 2009

I listed my home and the appraisal came in $10k less than my asking price. I agreed to lower the price to meet the appraisal and we all agreed and signed the contract. Days before the loan was to fund and after I was told that we had an approval, I was told that a second appraisal had to be done. I was told by my realtor that this was just a formality and that they would have to accept the 1st appraisal that I had agreed to sell my home for. If I had known that a 2nd appraisal had to be done, I would have waited to agree on selling my home until I knew what the 2nd appraisal was. The 2nd appraisal was done literally days before the loan was to fund. I completely moved out of my home and rented an apartment. The buyers did the walk thru and I was told all was good then, 6:30pm the night before the loan was to fund, I was informed that the 2nd appraisal came in $85K less than the first. Now the lender won't fund. What recourse do I have? I agreed to sell at the 1st appraisal price.

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Easy answer, YES! They can renig because the risk is too high or because they do not like you. Since it is more than likely the first, then yes, because it is their money.
0 votes Thank Flag Link Tue Jul 7, 2009

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 buyer’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 questions…and more…of your agent?
0 votes Thank Flag Link Tue Jul 7, 2009
Hello Marley and thanks for your question.

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
0 votes Thank Flag Link Tue Jul 7, 2009
Sad to say but the lender has the upper hand. The market can move fast (downward) and the lender can choose not to trust the 1st appraisal for any technical reason. The buyer needs to go back and push the lender to make sure the 2nd appraisal was not full of holes. Both the listing agent and the buyer's agent need to put their collective heads into this and find properties that support the value... and then push back real hard. A few questions to ask: Was the 2nd appraisal completed under the new HVCC rules? If so, the appraiser may have come from outside of the area and does not know the area very well.
Good Luck,
Russ Glines
0 votes Thank Flag Link Tue Jul 7, 2009
Hi Marley,

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.

Best regards,

Mark and Kari Shea
San Diego Real Estate Experts
Foreclosure, Short Sale & Investment Specialists,
Development Opportunities & Traditional Real Estate
0 votes Thank Flag Link Tue Jul 7, 2009
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