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Irene, Real Estate Pro in 48186

what if an appraisal comes in below an agreed upon sales price?

Asked by Irene, 48186 Wed Jul 15, 2009

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Hello Rene and thanks for your question.

If you are purchasing a home with a loan that will be guaranteed by Fannie Mae (FNMA) or Freddie Mac (FHLMC), then the lower price may be a result of the new Home Valuation Code of Conduct (HVCC), which has caused many appraisals across the country to be lower than expected. The HVCC, which requires lenders to use Appraisal Management Companies to hire and assign appraisal jobs to qualified appraisers, often results in appraisers who are unfamiliar with an area completing the appraisal. In some cases, the HVCC has encouraged the use of Automated Valuation Appraisals or AVAs that also provide lower than average values.

If the lender has provided the buyer with an appraisal that is less than the sales price, then the buyer has three choices:

1. Ask the seller to lower the price to the appraisal price. If the appraisal value is a reasonable amount lower than the sales price, the seller may agree to lower the the price. This will allow your sales contract to move forward.

2. The Buyer may pay more down payment to "make up" for the difference between the "sales price" and the appraisal value. For example, if the home was to be sold at $100K, and was appraised and $90K, then the buyer can put an additional $10K down ($100-90K) to pay for the difference between what the lender will loan and the seller wants.

3. The Buyer can change lenders and request another appraisal. Hopefully, this second appraisal will be higher.

Unfortunately, while the buyer may make an "appraisal valuation" request, there is no requirement under the current HVCC provisions that the appraiser needs to reevalute the data or the appraisal. In mose cases, to get a new appraisal, the buyer must change lenders. It's all very frustrating I know, and I'm writing a blog today to go into further details about the HVCC--a follow-up to a radio show I did this week on this same issue.

If you are the buyer, you can request an appraisal valuation. If you are the seller, you have only one choice for you, and that is to agree to lower the price or not. Unless the buyer chooses to change lenders or to come up with the difference between the appraised value and the sales prices, the sales contract may not be completed.

Consider your options carefully and work with your Realtor to discuss and find a happy solution. Good luck!!

Sincerely,
Grace Morioka, SRES, e-Pro
Area Pro Realty
San Jose, CA
1 vote Thank Flag Link Wed Jul 15, 2009
Rene
You have some very good posts here, just a few more points to be aware.

1. There are BIG problems with appraisals (see link).
2. An additional feature of the new appraisal guidelines is the requirement that the appraiser project future value. This has never been done before. A number of markets in the US are approaching the bottom. The problem with projecting future values is this: If one always follows the trendline, which in most areas has been downward, what happens when that line starts going up? Based on the guidelines the values will NEVER go up.

3. Make sure that your Realtor provides comps to the appraiser.
4. You can appeal the appraisal, but the problem is that the appraisal goes back to the same appraiser..so it's useless.
1 vote Thank Flag Link Thu Jul 16, 2009
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
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Oh, Rene, one more thing...

The provisions of the HVCC, which are not federal guidelines but an agreement to stop litigation against two GSEs, affects only those buyers who are obtaining loans that will be guaranteed or purchased by Fannie Mae and Freddie Mac. The HVCC does NOT affect:

1. Jumbo loans
2. FHA loans
3. Private money loans

So, while an FHA loan buyer may provide less down payment on the home and, admittedly, FHA loans are taking a tad bit longer to consumate than conventional loans, the FHA loan is NOT subject to any part of the HVCC and the appraiser on an FHA loan may be anyone that the Realtor or Lender chooses.

Hope this helps!
1 vote Thank Flag Link Wed Jul 15, 2009
Hello Rene:

There ARE several things that you can do to help in the appraisal process. If the buyer is using a local mortgage broker or lender, then have them ask the bank to provide you with a "local appraiser." Again, under the lengthy terms of the HVCC, the AMC or Appraisal Management Company is under no obligation to comply, but many will. Having an appraiser who is familiar with your locale is step one to getting a more accurate appraisal. Many of the issues being reported by homeowners and Realtors today regarding poor appraisals may be based on lack of "micro community" knowledge that enhances or detracts from a home's value. Unfortunately, I find that larger, national brokers (especially internet mortgage brokers) tend not to be able to persuade the AMC in getting a locally knowledgeable appraiser for the job.

If the appraisal is lower or you feel that it is incorrect, at the appraisal valuation, you may submit comparables for review by the appraiser. Again, they do not have to consider the comparable, but many local appraisers will give it a glance. This is especially important if there are new home sales that did not exist at the time of the appraisal.

Otherwise, unfortunately, the only other option for another appraisal is for the buyer to find another lender and to request a brand new appraisal.

Under the terms of the HVCC, the original intent was to provide "arms length" appraisal AND to provide homeowners, Realtors and lenders with a source that "oversees" all appraisals in the form of the IVPI (Independent Valuation Protection Institute). Unfortunately, the IVPI was never set up, so there is no one who can receive the complaints of inaccurate appraisals nor any independent oversight group set up. This is, in my opinion, the one great weakness of the HVCC and the rationale behind Travis Childer's and Gary Miller's bill before the House of Representatives, HR 3044, to provide an 18 month moratorium on the enforcement of the HVCC. The moratorium would allow the IVPI to be seated with the "Board" as specified in the provisions, and to provide for better oversight of the appraisals. At this time, HR 3044 is only in committee, and we do not know if it will make it out of the House to the Senate or to the President. We'll have to wait and see, but--pass or fail--HR 3044 will not be approved within enough time to prevent what I feel might be catastrophic effects on the housing market's attempt to recover.

We'll have to wait and see. In the meantime, ask for the local appraiser and keep your fingers crossed! Good luck!

Sincerely,
Grace Morioka, SRES, e-Pro
Area Pro Realty
check out my blog on the HVCC
1 vote Thank Flag Link Wed Jul 15, 2009
Without knowing more about the situation I would say that a buyer could think that they over-paid for that property and may ask for an adjustment of the sales price. Sure, another appraisal could be ordered but I don't think that the Buyer will want to pay for another since they sit is a good position to renegotiate. Appraisers are usually selected by the bank and there isn't much we can do- we get whomever we get. If you are the Seller you could pay for another or try to speak to that appraiser but it is a tricky place. If that bank's appraiser under valued the property then that means they will not loan enough for the buyer to purchase. The buyer will have to come up with additional funds or start over with a new bank. Tricky situation and I have been in it and it takes careful thought to hold it together. Good luck.
0 votes Thank Flag Link Thu Apr 21, 2011
Then either the seller must lower their price, or the buyer must agree to pay the difference. Our contracts here include language that nullify the purchase contract if the property does not meet appraisal. So, you would have to negotiate a new agreement.
Web Reference: http://www.leethomas.net
0 votes Thank Flag Link Thu Apr 21, 2011
Are you the seller?
1. Lower the purchase price to meet the appraisal.
2. Ask the buyer to make up the difference in cash.
3. If none of the above is possible, I've had sellers ask listing and buyer agent to use part of their commission to make the deal happen.

I'm sorry but I don't think it's ethical and maybe not even legal for us agents to give the appraiser comparables to use, especially since we have an interest in the transaction while the appraiser is a neutral party.
0 votes Thank Flag Link Wed Feb 23, 2011
What is called "loan contingency", where the sellers basically have one of two choices. They can accept the new appraisal price as the sales price OR they can cancel the transaction and you get to keep your earnest money. Google it and or ask your local agent or Realtor about it.Best of luck.
Spirit
0 votes Thank Flag Link Wed Feb 23, 2011
Are you really gonna buy a house if you find out that its not what you think it worth? No your not!

Will a bank pay loan you more for a house than it worth?? LOL, not anymore!


In louisiana, you can void the contract or renegotiate the price
0 votes Thank Flag Link Wed Feb 23, 2011
Rene:
To answer your second question: "is there anything a seller or agent can do to improve the odds of getting a fair appraisal?"
There isn't anything we can do to change the outcome of the appraisal. What we can do is educate our clients of the process, pull the comps and offer our very best 'opinion' of what the current market value of the home is so the seller has a realistic idea of what to expect and what to list the property for. With this information the seller can now determine if they should sell in this market our wait until the market improves.


Karin Smith - REALTOR
ABEK Real Estate
Cell: 985-707-7624
Email: ksmith.realestate@gmail.com
Website: http://www.propertypromenade.com
0 votes Thank Flag Link Wed Jul 15, 2009
A good listing agent will have likely put together a list of comparable sales when working with you to come up with a listing price for your property. Once you have an accepted contract, your agent can take another look at the comparable sales at that time and make the list available to the appraiser. We are hearing of problems with appraisers who are not familiar with a market area coming in to value property; and in some cases they don't even have access to the mulit-list service to research the comps.

Hopefully, the lender who is financing the buyer's purchase is familiar with your area and can recommend a list to the national company that is contracting the appraisers.

The National Association of Realtors has a good information sheet that explains the new federal guidelines which went into effect May 1, 2009. See the link below.

Good luck!
0 votes Thank Flag Link Wed Jul 15, 2009
The buyer can walk and so can the seller. However if the buyer puts enough cash down to offset the appraisal that would be ok ,or if the seller is willing to take the reduced amount that would also be fine. If it's a cash deal if the buyer is not concerned with the price he can still pay more than what it the appraised for. Most contracts provide an escape clause for the buyer concerning appraisal. If a lender is involved: Cash down or renegotiation is the only option
0 votes Thank Flag Link Wed Jul 15, 2009
You wrote: is there anything a seller or agent can do to improve the odds of getting a fair appraisal?

For the most part, appraisers are fair and unbiased. Their job is to give their opinion of fair market value. If you live in a subdivision with few recent sales (within the past 3-6 months), then the appraiser will look in areas not too far away, in like neighborhoods with comparable properties. Remember, appraisers are not in the business to kill the deal. They really want it to work, too.
Those of us who have been in the business for a number of years know that the real estate business is too competitive for shady appraisers to stay around very long!
Gayle Causey
Keller Williams Realty, Monroe, LA USA
318-812-7653 or 318-614-5615
http://gaylecausey.com
0 votes Thank Flag Link Wed Jul 15, 2009
If the appraisal comes in lower than the contracted sale price and the buyer is obtaining financing. The loan amount is based on the appraised value or the sale price whichever is less. It is typical to renegotiate for the seller to lower the sales price to appraised value and all other terms of the contract to remain the same.
In some cases the seller may agree to lower the sales price but decline to complete other terms of the agreement (i.e. closing costs, repairs, etc.). I hope that helps
Web Reference: http://dianahomes4you.com
0 votes Thank Flag Link Wed Jul 15, 2009
Rene:

If an appraisal comes in below an agreed upon sales price and the sale "IS' conditioned on appraisal:

Based on the "Louisiana Agreement to Buy or Sell," (The purchase agreeement) page two, line78:


If the appraised value of property is equal to or greater than the sale price, the buyer shall pay the sale price agreed upon prior to appraisal.

If the appraised value is less than the sale price, buyer shall immediately provide written notification to seller of appraised value and buyers request for seller to reduce the sale price.

Within ....time specified in contract......after seller's receipt of such written notification of the appraised value, buyer shall have the option to pay the sale price agreed upon prior to the appraisal or to void the agreeement unless the seller agrees in writing to reduce the sale price to the appraised value or all parties agree to a new sales price.


I hope this information is helpful!! Please don't hesitate to contact me directly if you need any more information!

Karin Smith - REALTOR
ABEK Real Estate
Cell: 985-707-7624
Email: ksmith.realestate@gmail.com
Website: http://www.propertypromenade.com
0 votes Thank Flag Link Wed Jul 15, 2009
Rene,
Unlike another answer, I would never advise you to shop around for a higher appraisal. An appraisal lower than the contract price can be to your advantage. If the seller refuses to lower the price, then he/she will have to face this same problem with the next buyer to come along, and the value may come in even lower! You are in an excellent bargaining position, but the seller does not have to bargain. Only YOU know if this property is worth additional money straight out of your pocket. The bank certainly won't come up with more than the appraised value. If this is THE ONE, then you may consider it. Take a good, long look at the situation. If you think you may move again within 5 yrs., your equity may never catch up to the difference in value. If you plan to stay there for the rest of your life, then it probably won't make a difference.
Good luck!
Gayle Causey
Keller Williams Realty, Monroe, LA USA
318-812-7653 or 318-614-5615
http://gaylecausey.com
0 votes Thank Flag Link Wed Jul 15, 2009
I don't have the answer, but a related question - is there anything a seller or agent can do to improve the odds of getting a fair appraisal? I have been told that the appraisers use only 3 months of home sales, for a very specific area - and the few numbers of homes sold (3, in my subdivision) are so few, that it does not seem they can be statistically valid. This seems to be a very unfair situation that is artificially keeping home prices low.
0 votes Thank Flag Link Wed Jul 15, 2009
The seller has a no. of days to lower the price.
0 votes Thank Flag Link Wed Jul 15, 2009
If an appraisal comes in below contract price and it is being financed the seller has to agree to the appraisal price or the buyer has to come up with more money if they want the property; the bank will not loan more than the property is worth. If the buyer is paying cash it is up to them if they feel the property is worth original contract price.
0 votes Thank Flag Link Wed Jul 15, 2009
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