The standard contract states that the buyer, failing to obtain a mortgage, is out of the contract and will get the deposit back. If the buyer makes up the deference between the sale price and the mortgage amount, the contract will stand, the mortgage having been obtained as per contract. If the buyer walks, as they are entitled to, then the seller can decide to continue to market the property and they can surely do so. However, they are on notice that the property is not worth what they wish to get. Another buyer, using a different mortgage company and appraiser, may come up with better results but that's a very long shot and the seller may be well advised to drop the price. I'm not sure how much of the first appraisal will reach any subsequent mortgage company.
You may even argue the appraisal a bit. I know that, before the meltdown, such maneuvers were successful in some cases. How they would work these days is not something with which I can say Iâ€™ve had experience.
Lenders will go off the contract price or the appraised value, whichever is lower. Starting May 1, with all FNMA FHMC loans, lenders cannot ask appraisers to change their reports nomatter how inaccurate they may seem. This is not yet the case with FHA. So, choose your lender carefully., and use someone with local expertise.
The bank wants to be sure they are covered value wise for what they have lent. In a declining market, it can be touchy in low money down deals, such as FHA - think about it, you only have a 3.5% cushion - and if there are seller concessions for closing costs in the deal, then the price is inflated to cover those. That can put real pressure on the appraisal because in fact your mortgage is based on the price that includes the money to cover the seller concession, but the real value, ie what you are willing to pay the seller, is net of it.
In answer to your question, can the seller sell to someone else, "yes".
You now see why cash deals can be so appealing to sellers, or those with high down payments - it either elminates or mitigates the appaisal concern.
Good luck to you!
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