You don't have much leeway with banks especially when you have said up front that you will not use the appraisal to negotiate, but it is worth a good effort considering the money and effort already expended.
Do you still have a financing contingency in place?
Without knowing all the details and having a copy of the contract it is impossible to provide professional counsel?
I am a residential real estate appraiser who has heard all the horror stories about valuation issues that have continued to drag this housing market through the murky waters of incompetence. Not to sound arrogant, but in my opinion had typical (and ethical) market forces been allowed to play out, the housing market "melt-down" may have looked quite different today.
If your agent didn't complete and submit to the bank representing the property, a Comparative Market Analysis (CMA) prior to submitting an offer without an appraisal contingency, then I'd be thinking about what kind of "professional" you've hired for the job of representing you in negotiations to purchase a home in a volatile (and in some areas, widespread declining) market. A CMA is a good tool to send along with your offer to verify you've studied the market and expect the offering price to be fairly close to what the market analysis shows. I'm (almost) sure your agent knows the bank's negotiator would have ordered a Broker Price Opinion (BPO) before listing the property and knew fairly well what an appraisal would end up coming in at for value. Being off the CMA by $20k is big (relatively), especially for standard tract or smaller "custom" homes. A professional listing agent knows the home will only sell for market value, because if the buyer is obtaining financing, their bank will only lend on what the determination of market value is by a professional appraiser. It doesn't make much sense to cancel the transaction at this point, because no matter what buyer comes in (unless it's all cash), market value is market value and as long as the appraisal has been performed ethically according to USPAP guidelines, the bank will ultimately end up selling it at or below market (again, depending on current local market conditions). In a "short-" sale transaction, that can sometimes drag on for months or years, this may not be the case - the market may depreciate or appreciate - and a current review of the market may be in order.
At this point, it might be a good idea for your agent to re-run the CMA and see what comes up. If it appears the market value is indeed off by the $20k you originally offered, and the seller won't budge, then you can either come up with the cash (which, in my opinion, doesn't make a great deal of sense in a declining market) difference, or back out of the transaction. Either way, an up-front CMA (or independent appraisal/BPO) to determine how the local market could react in forming your offer to purchase and then revisiting the market when negotiations ensue is a good way to let the seller know you're knowledgeable and want to deal fairly - in setting a pace of integrity and professionalism for this transaction, the seller is more likely to compromise if and when necessary.
I'm sure that almost a week later, you've already resolved your issues here, but just a couple of notes.
1. Your real estate agent will likely have the best information for you regarding this home, so always consult first with your agent regarding any question you have in this transaction. Your agent is your negotiator so trust him or her to be your best representative.
2. I am assuming that you are purchasing an REO property, not a short sale, based on the information you've provided with the appraisal restrictions. Please note that ALL banks must use independent appraisers to obtain valuation information on a home. So while you may be purchasing a B of A home, and using a B of A loan, it is NOT B of A's appraiser that will be conducting the review or providing the value for the home. This must be an independent third party due to the rules of the Home Valuation Code of Conduct (HVCC).
3. The notorious REO addendum, which should always be carefully reviewed by every buyer of any REO property, is usually the most binding document in the sales package and while you certainly can ask for a change in the price, given that this is B of A, I am dubious that your results will be favorable. B of A is getting much faster in processing their loans, short sales, and REOs, but they're not getting any more "flexible" in their pricing or adjustments to pricing when the appraisals are lower than the sales price. Hopefully, the listing agent in this deal is someone with a LOT of experience with B of A who might have some "pull" with someone in their offices and can get the lower price. If not, however, the chances of a favorable outcome for you diminish greatly.
Remember, if B of A does NOT agree to lower the price and you are unable to purchase the home without the adjustment, then your options are to cancel the contract and then submit a new offer at a lower price. Sometimes, this "reset" can force the bank to look anew at your offer, but it also can allow someone else to buy the home or reset the "clock" again on your offer.
Grace Morioka, SRES
Area Pro Realty
I'll defer to the others regarding your representation. What I am wondering is if you are in contract on a short sale. It sounds like it. Since banks have financial backstops in TARP/CDO/CMO and MI there is a bottom line that is NOT market value the bank/seller will not reduce price to.
Given that you are this close my guess is that somebody at B of A is going to compromise.
Be prepared to walk away if they do not negotiate (if you can).
The bigger question is "what does your Realtor say?" Based on the average home price of over a million dollars, $20K on a million would seem to be a very small point of negotiation. If your Realtor cannot assist you, then talk with their broker about ideas.
Do you still have your contingencies in place? Specifically the appraisal? If not you may be obligated to make up the difference.
The document you signed regarding appraisal is very important and you need to understand if it was a disclosure document or if it was a contractual document. If it is contractual you may be obligated to make up the difference.
You can always send over an addendum with a request to reduce the price down to the appraisal. No guarantee the bank will accept.
You can dispute the appraisal and get a second opinion.
You can make up the difference.
You can terminate the contract.
However, you need to understand what you are contractually bound to and what the ramifications to your actions will be.
We do not have that information and that is why we ask you to refer to your agent. Or, seek legal council if needed.