House appraisal discrepancy, we need advice before Monday... Help!

Asked by A, Central Lawrenceville, Pittsburgh, PA Sat Apr 5, 2008

We were supposed to close on a house in Central PA on April 7th. House is not located in what is conisdered a declining market. First appraisal came back $36,000 less than purchase price, second rushed appraisal came back at exactly the purchase price. Our agent did an CMA which is showing the house to be in the lower end of the gap. We were told when we made the offer that we were competing with other buyers at the time we made our offer and now feel that the origional offer we made was to high. Sellers agent at time of offer claimed he could not show us the competing offers due to his company's policy, so we took that contingency out of our offer for fear that our offer would not be presented equally. Now, the mortgage company wants us to re-negotiate with the seller (relo company owns it) to come up with new purchase price. Both appraisers stand by their numbers and both are licenced. How are we supposed to know which appraisal is correct? The whole thing really stinks...

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10
Becky Adams, Agent, Cambria, CA
Sat Apr 5, 2008
Dear Home Buyer, Appraising is not an exact science, but an opinion of value. Being an agent from California, I do not know your market, but I ask you these questions: Did you remove all of your contingencies--how much is your deposit, and is it at risk? (if it is substantial, it may have some bearing on whether you will try to renegotiate the price). How much is your down payment--does the loan to value ratio prevent you from proceeding at the lower value your bank is relying on? How much do you want the house--are there others like it in the market area? Have you asked your agent to pursue, with the broker of the listing firm, the release of the information on the other offers? ( It may help you build your case to substantiate the increased value). For what its worth, my opinion, without all the facts, is that you should rely on your agent's CMA showing the lower valuation and weigh it all in relation to your potential loss of deposit and a house you may really love. You may be over a barrel, because the lender has the ultimate say on the amount it will lend. Sounds like there is more negotiating ahead!
2 votes
Alex Inskeep, , Scottsdale, AZ
Sat Apr 5, 2008
Who ordered the second appraisal? The loan officer? Here are the steps I would take:
1. Appeal the appraised value from the second appraiser. In my area appraisers have to use comparable closed properties within the last 6 months and since we are in a declining market most lenders want to see comps within the last 2 months. Also they need to be within a mile of the property. They usually can't use foreclosures, short sales, auction, anything unusual from the norm unless that's all there is.
2. The Seller is under no obligation to sell you the home for a cheaper price and because there were multiple offers be prepared for them to say "no" and turn around and sell it to one of the other offers.

There really isn't a whole lot you can do here. I have to side with your realtor and guessing that the house is not worth the purchase price. You can't force the Seller to 're-negociate' however with that said a Relo company owns it and they are not in the business of keeping homes; they want to get rid of them asap so they might be willing to meet you at least 1/2 way. If you are truely interested in this home and don't care about the price you pay then you need to find out which appraisal the lender is going to use or if an average of the two. If the lender doesn't give you the full amount you were looking for you will need to come up with the difference or put less money down. Best thing to do is to go into your discussion with a plan. Know your limits and if it's not what you want then don't take it.

Good Luck!
1 vote
Brooke 'The…, Agent, Camp Hill, PA
Fri Apr 11, 2008
Hi A - Wow!!! - What a mess! - I understand I am LATE on this Blog Deadline Date.

Okay Let me ask you this - If your mortgage company came back with a lower value and you allowed them to get a second appraisal and you then agreed to close if the second appraisal was up to or over sales price (or as stipulated in your contract)

THEN you may just have bought a house!
If you can give me some other details I may be able to assist somewhat further...Hope that helps
0 votes
John Hersey, Agent, York, PA
Sun Apr 6, 2008
How bad do you want the house? Was there a contingency in contract about house appraising at or above purchase price? How bad do the sellers want to sell? They might negotiate if it is a relo co. Lately, it seems like they are losing money and don't care.
Web Reference:  http://www.calljohntoday.com
0 votes
David - Appr…, , Maricopa, AZ
Sun Apr 6, 2008
When an appraisal comes back lower than the purchase price, it is not uncommon to have a second appraisal ordered, however, when the second appraisal is ordered it is frequently requested by someone with a vested interest in the outcome and is requested to hit the value needed for the deal to close. An appraiser doing so is violating regulations and committing appraisal fraud. The person(s) pressuring the appraiser to do so is committing a felony. You as the buyer are paying for both appraisals, and as such are entitled to a copy of each. I do not know which one is correct in value opinion, but based only on what you have said it would appear the first is most likely. Whatever the outcome, re-negotiate the price or pay the the higher sell price or pay the difference between the lower appraisal and sell price or walk away - I would recommend having a real estate attorney review both appraisals. Good luck.
0 votes
Jennifer King, Agent, Wyomissing, PA
Sun Apr 6, 2008
Hi! I'm in neighboring (Lancaster) county....I would recommend at this point in time that you delay settlement. Your agent should be able to handle that for you. An appraisal is an 'opinion' of value. Your agent should be able to request that he/she be given the info. as to which comparables were used by each appraiser to arrive at their opinion of value. This would allow your agent (hopefully a seasoned one!) and/or his/her broker to review the info., and determine which comps. are the best in relation to the property you are purchasing.

In Lancaster, we are not in a declining market either, but I am reviewing all CMA's and appraisals very carefully....and keeping the info. as "tight" and clean as possible. (solds in the past 3 months, exact type of house , immediate area surrounding the property (within the subdivision if possible), and/or at least within 3-5 miles max. of the subject property.

Check w/ your agent....but if you need a few days or week to resolve this matter, it will have been worth your time to investigate your options, and have your buyer's agent work closely with you, to ensure that you're happy w/ the results at the end. We typically cannot share the details of the competing offers in our market (unless we have written permission from the sellers, and have disclosed this to all buyers), so this doesn't surprise me. I'd be curious to know why the mortgage company is looking for you to renegotiate w/ the seller....what amount are they funding? % based on lower or higher appraisal, etc...?

Both appraisers are probably correct- based on the comps. they used for the sales comparison approach. The question is - which comps. are the best fit to your home?

I hope that helps!
Web Reference:  http://www.Jennifer-King.com
0 votes
Larry Miles, Agent, Salem, OR
Sat Apr 5, 2008
WOW, what a story! The big question is...what price to you feel comfortable paying for the home? And, are you prepared to walk away from it if the price is too high for you? When a home buyer is 'rushed' they are always unhappy when the deal closes. Sounds to my like you are under tremendous pressure. I have always felt that an educated buyer is a happy buyer, and that maybe you might need time to figure all this out with your agent. Sounds like they have done a good job for you. The most important person in the transaction is you. You have to be satisfied with the transaction when it is all over.

Good luck to you!
0 votes
A, Home Buyer, Central Lawrenceville, Pittsburgh, PA
Sat Apr 5, 2008
OP Here. We took out the contingency that the seller's agent had to show us the competing offers. We did make our offer contingent on the house appraising at or above purchase price, and when the first appraisal came in so low, our buyers agent had us sign an addendum that would protect our depost in case something like this would happen. The mortgage company isn't "necessarily" going to lend us enough money to cover 80% of the purchase price now due to the first appraisal being so low. We are going to put 20% down on whatever the price end up at... but we aren't going to make up a difference if the bank only wants to lend us 80% of the amount of the low appraisal. I They won't tell us what they will lend us until we re-negotiate. Is this how it works?

I am just having a hard time understanding how this appraisal process works. I understand that it is an opinion, but how the heck does the second appraisal just "happen" to be the exact purchase price that we agreed upon when the first one was so low. Apparently, neither appraisal used the best "comp" property that is located on the same street as the house we are trying to buy, and also just happened to sell last month. The second appraisal is using properties that sold a year ago, and the morgate company gave them suggestions as to which properties to use.

We are re-negotiating on Monday, but we have to be out of our place by the 14th, and everybody involved in this situation knows it and I feel is using it to take advantage. I am just really upset about this whole process, especially since it is supposed to be a buyers market, and we have tried to do everything right.

Thanks for your help and for just listening! At least our next step falls in line with what you all are saying!
0 votes
Sylvia Barry,…, Agent, Marin, CA
Sat Apr 5, 2008
Did you say you took the ontingecy out of the offer? I suppose you meant 'appraisal' contingency, right? If so, do you still have a loan contingency? Perhaps you can't get the lender to give you the amount of mortgage you need due to lower appraised price? If so, you should be able to negotiate. If you also took out the loan contingency, you might have a hard time negotiating unless you are willing to walk and potentially lose your deposit.

I'd go back and look at the terms and conditions on the contract closely.

Sylvia
0 votes
Alex Inskeep, , Scottsdale, AZ
Sat Apr 5, 2008
Well, do you really want to pay the higher price? I'm guessing no and since many areas are in a declining market now a days you want your appraisal to come in higher than what you are paying for the home not the other way around. There should be a clause in your contract that makes it contingent on appraising for the purchase price. I would DEFINATELY try to renegociate the price or cancel.

Good Luck!
0 votes
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