If a seller cancels a contract due to a low appraisal, can the buyer be reimbursed the appraisal & inspection fee?

Asked by annadgu, 85339 Sat Nov 24, 2012

Since the seller (investors) required we use their preferred lender, the contract stipulated the seller would agree to lower the selling price to the appraised value if it came in under the selling price. When the appraisal came in $20k under, they decided not to sell to us and canceled our contract.

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Sonny Shriva…, Agent, Goodyear, AZ
Sat Nov 24, 2012
If your contract specifies that the seller WILL lower the sales price to appraised value and the seller subsequently violated that term of the contract by not lowering the sales price to appraised value, then the seller may be held in breach of contract. You may be able to recover the cost of inspections, appraisal, and any other damages you feel you have incurred as a result of the seller's breach. You need to understand your contract or obtain legal counsel to determine your options.
1 vote
Bill Parker,…, , Scottsdale, AZ
Sat Nov 24, 2012
Hi Annadgu:

None of us on here are real estate attorneys, so your question on contractual law is probably better asked of one of them. I can refer you to one. But, first, it just makes sense if the Seller entered into a contract to pay the lower price and now is breaking the contract because of that; I would think they would be happy to get out of such a contract for the mere price of an appraisal and fees...

Contact: Kristi Collins at Scottsdale Law Group, kcollins@scottsdalelawgroup.com, (480) 478-0709

Good luck.

Bill Parker, Loan Officer
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CPA--Licensed, no longer practicing

GenCor Mortgage, Inc.
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1 vote
, ,
Sat Nov 24, 2012
Wow, annadgu, sorry to hear of your situation. Sounds like you have a couple issues here...

First, it is illegal, based on the Fair Housing Act, to require a buyer to use the seller's lender to finance the purchase of the home. They can however, require the buyer to pre-qualify' with that lender. Check out Jay Thompson's blog on this very subject:

* http://www.phoenixrealestateguy.com/specifying-a-lender-stee…

Second, did you have your own real estate agent representing you? What did they say about the sellers canceling?

If you want legal questions answered, you really need to get the paperwork to a real estate attorney to review.

Good luck,

Please feel free to contact me directly if you have any further questions, I'd be glad to help.

All the best,

Roswell Moore, CMPS
Certified Mortgage Planner
480-422-5095 direct

We are a Direct Lender, Mortgage Bank where we originate, process, underwrite, fund, AND SERVICE our loans, in-house, with FHA (starting at a 580 score AND still only 3.5% down), FHA Streamline refinance loans (NO minimum credit score, NO appraisal required) Go Green rehab loans, HomePath, Investor Friendly (10 financed properties), VA, VA Refinance loans (NO appraisal required on IRRRL loans), USDA loans, Jumbo loans, Conventional loans, plus, we allow Escrow Hold-Backs!
Web Reference:  http://www.ezAZloan.com
0 votes
Jim Mitchell, Agent, Tempe, AZ
Sat Nov 24, 2012
Anna, I'm not an attorney, but as a licensed agent in AZ I have a good understanding of the contract as all agents and brokers should. In cases like this, you should immediately consult with your buyer's agent and his/her broker; they'll help you to determine the next course of action, be it speaking to an attorney, entering arbitration or filing a complaint with the AZ Dept. of Real Estate.

If you're using the standard AAR Arizona Real Estate Contract, there is no requirement in the 'boiler plate' language of the contract that forces the seller to lower the price to meet the appraised value or reimburse you for the cost of the appraisal. The contract simply allows the buyer to cancel the transaction within 5 days of receipt of a low appraisal (pg 2, section 2m).
It IS possible however that your agent OR the listing agent wrote in specific verbiage on page 7, section 8(a) that stated the seller would lower the purchase price to the appraised value if the property did not appraise at the contract price. Look on your copy of the accepted contract and see if such verbiage exists. In this current market, I don't see this type of thing added to a contract very often due to the large number of low appraisals that have occurred in the past couple of years. A seller wouldn't be wise to do this (especially a 'fix and flip' investor) because it could cost them a LOT of money if the appraisal came in significantly lower than anyone had anticipated.

In the case of a low appraisal, IF the seller does NOT agree to lower the purchase price to the appraised value, a buyer has the option to (a) pay the difference ABOVE appraised value, or (b) cancel the contract. In either case, the appraisal fee and any other fees incurred during that period (inspections, etc) are BUYER fees that are typically NOT recoverable unless both parties had agreed upon something prior to contract acceptance in writing other than the standard contract language.

Now, with that being said, since you're saying that the "...seller required you to use their preferred lender..." in order to agree to accept your offer, you might have a legitimate argument to recover some of those fees. I would strongly recommend you consult with your buyer's agent and his/her broker, and quite possibly talk to an real estate attorney. You have to weight the cost of an attorney versus the recoverable costs (appraisal fee, inspections if you did any) and see if it's worth it to pursue it further.

When a buyer and seller enter into a contract, the buyer accepts the fact that he/she must incur certain fees in order to complete their side of the agreement. The appraisal fee, which is charged up-front in some transactions, is the 'riskiest' of those fees because it's quite possible that if the appraisal comes in lower than the agreed upon purchase price, the seller will not accept the appraised value and agree to lower the purchase price. If that happens, the buyer loses that money they paid to the appraiser. (Remember, the buyer is paying for a service and the work of the appraiser; they still get paid regardless of what value the appraisal comes in at).

I know it stings, but that's part of the risk a buyer takes in this market. I know it won't make you feel much better, but you're not alone; I'll bet you could ask any real estate agent out there working in this market and most would have a story similar to yours.

Thanks for the question!

Jim Mitchell
Realty ONE Group
0 votes
Doug McVinua, Agent, Gilbert, AZ
Sat Nov 24, 2012
On face value with the content you have shared it would seem you may have something. Without knowing all of the details it's impossible to provide an opinion.

Option 1 would be to request the agent representing you provide clarity.

Option 2 would be to see a real estate attorney.

Always make sure you have a Realtor representing you and your interests.

Good luck and sorry to hear of your challenges!
0 votes
Rocky Dole, Agent, Maricopa, AZ
Sat Nov 24, 2012
This is an issue that you should ask your agent about. You may also want to talk to an attorney but I would start with your agent.
0 votes
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