Financing in Ann Arbor>Question Details

Andrew Bank, Other/Just Looking in Ann Arbor, MI

Can a buyer with 10% down payment buy my house for $221K even if the appraisal came in at $205K?

Asked by Andrew Bank, Ann Arbor, MI Thu Feb 28, 2008

I found a buyer for my house, willing to pay $221K. But the appraisal came in shockingly low at $205K. This particular buyer only had 5% to put down, so the bank would not give him the loan. I'm wondering if another buyer comes along and has sufficient cash to put down, will a bank give them a mortgage even if the sale price is higher than the appraisal?

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Andrew, ironically I just had this happen on one of my listings. The appraisal came in $27,000 less than we had a signed purchase agreement for. That was a little nerve racking. It was a very unique home...historical, on acreage, with a private lake. The buyers were in love with it and just brought the difference to the closing table. My sellers lucked out! Must buyers would say...Ok only appraised for in your example $205,000 so you will have to sell it for that or we walk.

Appraisers can have different opinions as well. I suppose you or the buyer could get an second opinion from another appraiser. That might work. But could still be an up hill battle with underwriting. Is it an option to take the $205,000 from the buyer so that you can make this work? In today's tough market a buyer can be very hard to find. Realize in the buyers market we are in, not too many buyers are going to pay one penny over the bank appraisal. Unless you have an extremely unique house like I had back in November, that I explained earlier.

I hope this information helps! Best Wishes to You!
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0 votes Thank Flag Link Sat Mar 8, 2008
Andrew, First of all, the buyers and seller set the market and not the lender, appraisers or real estate agents. It is what a buyer is willing to pay for your home. Given that, even if your home appraises for $205,000 you can sell it for the $221,000. HOWEVER, the lender will use the lesser of the two values (in this case, the $205,000.) The purchaser can come up with the difference of $16,000, but the lender will not use the $16,000 credit for a down payment. It will be based on the $205,000.

The good news about that is this could help raise the value of the neighborhood. Of course, it would take more than one home to sell over market to make a noticable difference.

We went through this a few times over the last thirty years. The one time I remember most was in ther 90's when people started overbidding on homes which drove the market up. However, as lenders, we still used 'comps' of recently sold homes. It takes quite a few homes to sell over market over a good amount of time to make a difference. But it can be done----has been done----and I believe will happen again.

Appraisals will vary from appraiser to appraiser by a certain percent. I would suggest hiring your own independent appraiser to give you an unbiased opinion. Hope this helps.

0 votes Thank Flag Link Fri Mar 7, 2008
Thanks Missy and Todd. I have better comps that I found through Zillow, Trulia, and City of AA tax assessment site. I could have challenged the appraisal and the buyer was even willing to get another one. But they were also starting to look at other houses and their loan was only locked to March 10. So time was of the essence and I decided to take my bird in hand. The closing is March 7.

Incidentally, I have already moved into another house in AA. So I was paying two mortgages and that led also to my time-sensitive decision. Thanks again for your input.
0 votes Thank Flag Link Fri Feb 29, 2008
Andew, if you willing to share your address, I will take a look at three comps that I would use to challenge the appraisal and email them to you. Of course you are absolutely right, Ann Arbor has unique lines of distinction. Does an out of area appraiser really know where the Old West Side and the West side area line is?
Do they understand houses on busy streets, but walk to down town don't lose their value?
You should be able to send the appraiser better comps with a justification for those comps.
Unfortunately with the bad loans given for re-financing, lenders only are now allowed to only use certain appraisers. I had one come in low, only a few blocks away from the subject property, but they were using Bryant-Pattengail School instead of Allen School. Hugh difference but the out of area appraiser didn't know.
Anyway if you need help, send me an email.
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0 votes Thank Flag Link Fri Feb 29, 2008
Andrew, I am sorry your appraiser was indeed from out of area (I had the idea they were). I wish I could have been there to fight for you, I have saved many sellers and buyers from bad appraisals over time. It sounds like you are leaving our fine area. I hope you will return and look me up to find your new home.My phone number is 734/ Mi-LANDS. I was born and raised in A2 and I think I have a good understanding of the market.
Happy Trails!
0 votes Thank Flag Link Thu Feb 28, 2008
Thanks for all your answers. I really appreciate it. I am selling the house by owner so I don't have an agent (sorry!). I do have a copy of the appraisal though. The appraiser is from Brooklyn, MI and in my humble opinion, used rather poor comps. My house is in the Pomona-Miller neighborhood, about 3/4 mile from Main Street, walking distance to downtown, Mack School, West Park, Pomona-Mixtwood Park, Big City Bakery, Knight's Market, and the YMCA. 3 out of the 5 comps used by the appraiser were houses far West of Newport Road and 2 out of 5 were in the Maple/Dexter neighborhood (S. Circle and Carbeck area). I think everyone with knowledge of AA home prices knows that as you move further West of Main, house prices tend to decline (all other things being equal) because they are not considered walking distance to town. The comps in those neighborhoods were of similar size and qualities and sold for around $205K. My house has a handful of new and updated features and the inspection passed with flying colors. To say that this house is worth the same as these others is just a poor appraisal in my opinion. The appraiser seemed to give no credence to "proximity" value. To me, this is like giving two identical houses the same prices, even though one is one a lake.

Anyway, not to bore you or keep you in suspense. I decided to sell it for $205K. I believe I could find another buyer with cash to put down and/or better financing, but that could take months and it might not happen at all. If I took it off the market and rented it for a few years, I might sell it then for $230K, but in the end, I'm not gaining that much over 3-5 years. There were too many unknowns so I'm taking the plunge.

As to the question of whether a buyer would pay above the appraisal price, I think this is moot since the appraisal was so poor. I think a *local* appraiser would give it another $10K in appraised value but this buyer didn't have time to wait (although he was willing to get another appraisal).

I hope I'm not being one of those sellers who just can't admit his home's real value. I always thought your home/car/whatever is worth what a buyer is willing to pay. I had a buyer willing to pay my price, but that maxim didn't hold up in this market. The bank, in its extremely bruised and cautious state, made the decision for us.
0 votes Thank Flag Link Thu Feb 28, 2008
As soon as I read your question I had the same thought as James. Why would someone buy your home for more then the appraisal? This is not a good investment for the seller.........and as you can see not for the bank either.
However if someone is willing to over pay, and if they have enough money to to put down to make up the difference between sales price and appraised value, then they could probably get the loan. However do not hold on to this thought too tightly, as most people will not pay over appaised value.
I know you are shocked to find out your home has appraised for less then you think it should have. I am sorry this happened, however you are not the only one in this situation, think about your next move you have a buyer willing and almost able................
0 votes Thank Flag Link Thu Feb 28, 2008
Andrew, Please review the contract for the buyer. The buyers options in the event that the home does not appraise should be stipulated within the contract. Most will have a clause that allows the buyer to walk away if the lender does not fund.

I'm not an expert, but these would be your options.

(1) the selling price has to be reduced
(2) the buyer has to bring additional money to the closing to cover the gap
(3) the contract is terminated
(4) a combination of selling price being reduced and buyer bringing additional money to closing to cover the gap.

James' question is very sound. As a buyer, I doubt you would choose to loose 16K from the very start in a declining market. As Missy stated, your agent might be able to get the homes used in the appraisal. Most appraisers and lenders are very conservative, but there could have been an error.
0 votes Thank Flag Link Thu Feb 28, 2008
Do you think this value is correct? Sometimes an appraiser comes froma long way away and does not know your neighborhood, io find it is alwaysbest to have someone local do appraisals unless you think your price is not justifiable. Are you working with an agent? Have you or they spoken with the appraiser? You can also suggest that you would pay for a second appraisal... Good luck!
0 votes Thank Flag Link Thu Feb 28, 2008
You could order another appraisal or have your Realtor send over better comps to the Buyers Agent, I have had to challenge a few appraisals in the last year. But, the lender the buyers chose has to work with an appraiser of their choice, due to the inflated appraisals a few years ago.
Has your Realtor looked at the appraisal? They need to and see if they agree.
If they do than it is best to come to terms with the buyers.
I have found that even in a sellers market, which we are not in, that buyers are reluctant to buy a home that does not appraise even if they have 20% to put down.
0 votes Thank Flag Link Thu Feb 28, 2008
Andrew the lender will only give a note up to the appraised value of the home. If you found a buyer willing to pay over appraised vaule of the home that had cash for the difference between the contract price and the appraised price you would be alright.

Just one question though would you purchase a home for 16k over the appraised value?
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0 votes Thank Flag Link Thu Feb 28, 2008
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