If a property doesn't appraise for the amount of the offer, what are buyers options to continue with purchase?

Asked by Cheyenne Jones, Concord, CA Tue Feb 21, 2012

Short sale Listed at $220, offer in 6 days at full asking, good credit and 20% down, has loan approval. Comps show $190,000 or so average sales price for similar. Does lender approve 80% loan to comp value and buyer comes up with difference? Or does lender refuse to do loan on property buyer is overpaying for?

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Kevin and Julie McLaughlin’s answer
Kevin and Ju…, Agent, Wildomar, CA
Thu Mar 15, 2012
Typically, your lender will only lend to you based upon the lesser of the appraised value or the purchase price. Options - renegotiate the purchase price, pay the difference, or back out.

Let us know how it goes! Good luck
1 vote
Gilbert Rich…, , Santa Clara County, CA
Tue Feb 21, 2012
Well the buyer can either pay the difference or try and negotiate a reduced price based on the appraisal via your realtor.
0 votes
Patrick McCa…, Agent, Walnut Creek, CA
Tue Feb 21, 2012
As has been stated, in a short sale there are three interests that need to be served, seller, buyer and seller’s lender. Technically the seller’s lender is not a party to the transaction but must approve the terms. If the buyer’s appraisal comes in under the asking price and the buyers are unable or unwilling to make up the difference then the logical alternative is to counter the terms with the seller to accept the lower sales price. If the seller accepts the new sales price is submitted to the seller’s lender for approval. In my experience there is a high probability of approval. I attribute this to the fact that the appraisal system is by and large a product of the banks to ensure value and therefore they generally abide by the results.
0 votes
Neil Case, Agent, Martinez, CA
Tue Feb 21, 2012

There is another option that has not been mentioned here yet. If you really want this property and you are willing to pay the contract price and perhaps you believe your appraisal is off the mark, then you can ask your loan agent to challenge the appraisal. I have had great success challenging appraisals when I have been able to show reasonable evidence that there are comparables and adjustments that support the higher value. Good Luck,
0 votes
Veronica Hid…, , Concord, CA
Tue Feb 21, 2012
Your lender will accept 80% of the appraised value OR the purchase price - whichever is lower. It sounds like the appraisal hasn't taken place yet, but you're concerned about the appraisal coming in under the offer amount due to the lower comparable sales. Inventory is so tight in Concord right now that we're seeing prices push up a bit due to huge demand and little supply, so if the house is all remodeled with nice upgrades, the appraisal might be just fine. IF the property appraises for less than the offer amount, you can bring more money into closing to keep the loan at 80% of value. Even better is sending the appraisal to the shortsale lender/seller and renegotiating the sales price to match the appraised value. Good luck.
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Lance King, Agent, San Francisco, CA
Tue Feb 21, 2012

In a situation like this, typically you have the following choices:

1. Come up with more money to cover the shortfall
2. Negotiate for a reduced price to accommodate the shortfall - most likely the bank will not cover all of the shortfall but you can try
3. Back out of the deal.

Best Regards,

Lance King/Owner-Managing Broker
DRE# 01384425
0 votes
Suzanne Look…, Agent, Lafayette, CA
Tue Feb 21, 2012
Great question. Usually when an appraisal comes in under the contracted price, both sides have the opportunity to negotiate the difference. In an equity sale, the buyer can either ask for the seller to reduce the purchase price to the appraised value or they can negotiate by splitting the difference or the buyer can come in with more cash.

In a short sale, it gets a little trickier because you have 3 parties to the transaction, the seller, yourself and the bank, who is making the final decision. You still should have the option to add more down payment money to make up the difference or you can attempt to counter the bank back with the newly appraised price. The bank will have the same issue with another buyer unless they are all cash, so they may work with you to reduce the price.

Good luck with whatever position you take!
Web Reference:  http://www.suzannelooker.com
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