Just.a.guy, Home Buyer in 78746

What can a buyer do when the appraisal comes in lower than the selling price but won't trigger a contingency?

Asked by Just.a.guy, 78746 Wed Apr 21, 2010

We love the house and had convinced ourselves that even though it was high on a per-foot basis, that on a replacement cost basis and given some features of the property (lot, quality of finish, condition, single story, etc) that the offer price was justifiable.

Imagine our shock that the appraisal has come in below the purchase price by 9% ($65K)! Unfortunately we are putting enough money down that this will not trigger a financing contingency, and we are a few days past the end of our option period. Do I have a leg to stand on in renegotiating the price, or is my earnest money ($10K) as good as gone if the seller is obstinate and we decide to walk?

I've never been in a situation like this before, and need to understand how hard a line we can take or what our options are... it feels like we will be negotiating to lower the price 65K against a seller whose credible threat is to take our 10K and wait for another offer. Ugh!

Any ideas?

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Guy Gimenez, Agent, Austin, TX
Wed Apr 21, 2010
You'll have to refer to your contract for the answer. However, if you used the TAR or TREC contract form most commonly used in Texas residential real estate transactions, AND, if your purchase is subject to you obtaining third party financing, then you can likely terminate the contract without penalty (meaning your earnest money must be returned as long as you haven't otherwise breached the contract) because the property did not meet the "lender's" requirements. In other words, the home didn't appraise at or above the contracted purchase price. This is stated in paragraph 4 of the contract form.

If you decided to terminate the contract and the seller unlawfully retained or otherwise refused to release your earnest money, the contract allows for treble damages, or $30K, if you are forced to sue in order get the earnest money and you prevail. This is in addition to reasonable attorney fees.
Web Reference:  http://www.phgbrokers.com
2 votes
Crystal Garza, , Austin, TX
Wed Apr 21, 2010

Everyone has provided some good points about the underwriting/loan process however just wanted to let you know that if you are worried about you getting your 10k, ask your realtor to call the TAR (Texas Association of Realtors) Legal Hotline to get legal advice regarding your options.


While you are getting legal advice, you might review your TPA (Third Party Addendum) to see how many days you have agreed to obtain financing. This is another important deadline that can jeopardize your earnest money. Usually 15-30 days from effective date of the contract. If you have a few weeks left, then you might wait to terminate the contract and try to negotiate on sale price. Of course, at the same time speak to the legal hotline regarding your earnest money.

Hope this helps and keep us posted!!
2 votes
Guy Gimenez, Agent, Austin, TX
Thu Apr 22, 2010
Understand the legal hotline is for TX. Assoc. of Realtors members only. If you have an agent, he/she can contact them...nonmembers can not.
Web Reference:  http://www.phgbrokers.com
1 vote
Steven Nusin…, Agent, Austin, TX
Thu Apr 22, 2010
You do have a big leg to stand on with all the power. I understand that your down payment is sufficient to still finance the deal, but the contract states that the home needs to meet underwriter requirements.

A home that doesn't appraise does not meet underwriter requirements.....Your earnest money is FULLY refundable at anytime. If it were me, I would show them the appraisal and ask for a significant amount(if not all) of it back in the form of a price reduction. In negotiations, I would say the same thing is going to happen with your next buyer.

Feel free to contact me if you have any additional questions
1 vote
What if the listing agent gets mad and says we (the sellers) are going to get our own appraisal . The buyers are still not holding to this are they? Because it is the buyers lender's requirements.
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1st Zero-Emi…, , Austin, TX
Wed Apr 21, 2010
i recommend against playing "hard ball". It rarely works in negotiations, especially when the facts are not on your side such as in this situation. You need to Negotiate with seller, not Upset seller.

If you want the 9% off, call me as soon as you can and I'll get it for you. If I cannot get it for you, no harm no foul, but you will need to simply commit to the concept of representation.

After you call that TREC hotline and they tell you that "the contract stands as written", call me prior to playing hard ball. Time is of the essence on your move here.

(if you are a Realtor seeking Realtor advice, I also recommend hiring a Realtor to execute the right negotiation attempts for your buyers)

Shawn Monshaugen | Residential . Commercial . Real Estate

Partner & Realtor | Keller Williams Realty | KW Commercial

1801 S. MoPac ste. 100 | Austin, Tx 78746

O: 512.330.1075 | C: 512.663.4686 | FAX: 512.448.4822
1 vote
Pacita Dimac…, Agent, Oakland, CA
Wed Apr 21, 2010
Depending on your contract, is there something that says your purchase is based or contingent on the property appraising for offer price?

If you have not released all your contingencies yet --- there is room to negotiate. Feel free to share the results of your appraisal as proof.

Since you are already in contract, the seller may be more willing to work with you and reach a mutually satisfying agreement. Otherwise, and if you walk, the seller will have to start all over again, marketing the property.

Again, if you haven't released all your contingencies (and i truly hope you didn't), then you may still be able to back out of the agreement and get your deposit back. You have legitimate reasons:
1) the property didn't appraise for your offer price
2) you may not have enough funds to cover the difference
3) the lender may not want to give you the loan at your offer price.

Good luck
1 vote
Randy Stevens, , Austin, TX
Wed Apr 21, 2010
So you are saying that you are out of the time period prescribed in your Third Party Financing Condition addendum? If so, I guess you are stuck.

But what I gather from your first paragraph, you knew that it was priced high in the first place and were still willing to pay the inflated price. It shouldn't have been a surprise, then, that the appraisal came in lower (although 9% lower is a bit excessive!) If your down payment is enough to cover the difference and nothing else has changed, why not proceed with the sale? You were willing to pay it before anyway.
1 vote
Patrick Thies, Agent, Anytown, IL
Wed Apr 21, 2010
Not sure what you mean by triggering a financing contingency. Unless you are paying cash, you should have a financing contingency in the contract for your loan. Most lenders will not approve the loan if the appraisal comes in lower than the purchase price. Your contract should have had something in it to the affect that the property must appraise for or above the purchase price.

If the property does not appraise out, then you can go back to the seller and renegotiate the offer. Depending on how your contract is written, you should have a couple of ways out. One being that if the house doesn't appraise and the other would be the financing. As long as you meet contingency deadlines, then a seller can not keep earnest money.
1 vote
TCP Real Est…, Agent, Austin, TX
Wed May 5, 2010
I'm curious to know what happened on your contract.

When an appraisal comes in short, there are a few options:
1) Seller and/or buyer can concede the difference
2) Buyer can terminate the contract based on not being able to obtain financing (if within Third Party Financing Addendum terms)
3) Ask lender to challenge appraisal

I write into all contracts that the appraised value must be equal to or more than the agreed to sales price, or buyer can terminate contract and receive all earnest money back. It protects the buyer from the seller threat of keeping earnest money.

The good news is that if the appraisal came back low, it is in the best interest of the seller to negotiate too. If they try to put it back on the market, it will probably have the same issue with another buyer - if financed.

It sounds like you had an idea that this home was priced high.
0 votes
Brenda Sours, Agent, Austin, TX
Thu Apr 22, 2010
I had this same situation come up with a client earlier this year on a new home being built. The appraisal came in about $30,000 lower than the sales price and the buyers, like you, wanted to still buy the house. The builder had a new appraisal done by a different appraisaer and...you guessed it, the value came up to the sales price. Since the appraisal eventually met the sales price we can only assume that we would have tried to negotiate with the builder to split the $30,000 shortage, or would have tried to get the earnest money back. If you go the route of trying to get the earnest money back and the seller tries to keep it, you might need to contact an attorney who specializes in real estate. I worked for several attorneys before becoming an agent, so let me know if you need a recommendation.
0 votes
Don Groff, Agent, Austin, TX
Thu Apr 22, 2010
Make sure you look at your Third Party Financing Addendum. In the first paragraph there is a blank where the agent fills in the number of days you have to get out of the contract if you cannot obtain financing.. If a home does not appraise out this will definitely trigger this "out" in the contract regardless if you are putting enough down payment or not. If you have not notified the seller within the allotted time then the contract is no longer subject to the terms of the financing addendum.

Your agent will need to help you renegotiate the terms of the contract based on this new appraised value. This is a buyers market and the sellers would be foolish to have you walk away because they will not likely be able to sell the property for $65,000 over the asking price.

You need to renegotiate the contract to the appraised value and if there are any issues both parties can go to arbitration to settle the dispute. Arbitration is a simple process where you both state your cases and a decision is made on who receives the earnest money.

I think if you all work together you will be able to come to mutual agreement. If not I believe you have an excellent chance of getting all of your earnest money back. But act quickly and review your contract. Your Agent always needs to make sure you know all of the time lines in a real estate transaction or it can cost you a lot of money. As it states in the Third Party Financing Addendum: "Time is of the essence for this paragraph".

Good luck to you.
0 votes
Thelene Gilm…, , Austin, TX
Thu Apr 22, 2010
Hopefully, you have a REALTOR® who helped you write a contract that will help you with this. The purchase contract that licensed REALTORS® use can be written so that the buyer has ways to opt out of the contract if issues arise during the transaction that are not agreeable. To be honest, I'd have to read your contract to fully answer your question, especially concerning who gets to keep the earnest money if you do opt out of the contract after your option period has passed.
0 votes
Don Tepper, Agent, Burke, VA
Thu Apr 22, 2010
Good advice from Dp2. It's pretty clear--from the appraisal and from both your initial question and your follow-up comments--that the house is overpriced. Maybe not by 9%, but certainly overpriced.

The negotiating strategy goes something like this: "Mr. Seller, as you know, my wife and I really like your home. We knew that you'd priced it high, but hoped the appraisal would support the price. As you know, it didn't. And that's disappointing. However, we can't bring ourselves to overpay on the house--at least not by 9%. So, given those circumstances, we're thinking about just pulling out of the purchase.

"And I understand your situation. You've got a nice home and you want to sell it. But now you've got a problem because we know what the home will appraise for. And that means anyone else who comes along and wants to buy is going to get the same sort of appraisal. The point is: It's just not going to sell to anyone--anyone at all--for this higher price. That means that if you really want to sell it, the price has to come down.

"On top of that, your home has been on the market for a while. It may take some time for another buyer to come along along. But right now, you've got an interested buyer who's willing to buy it for 100% of appraised value. We're qualified and we're willing. It might be months until you find someone else ready to move forward, even at the appraised price. We're here now."

Then you can offer one or more options: (1) Buy conventionally at the full appraised value; (2) Offer to buy at full appraised value, but actually compromise on the price with the remainder coming out of your pocket; or (3) Offer a higher-than-appraised price with some creative financing, such as the owner financing that Dp2 suggests. Or . . . another negotiating technique after that little speech is to shut up. Say nothing. Let the seller respond with an offer. Start off initially either no higher than the appraised price or ask for something else, such as owner financing.

Check with your Realtor on these strategies. Maybe he/she has some other suggestions as well.

Hope that helps.
0 votes
Dp2, , Virginia
Thu Apr 22, 2010
It sounds like that property is overprice by 9%. You could counter the seller with 2 different options: you'll pay that price if the seller agrees to sell with seller financing, or the seller needs to lower his/her price by 9% according to the appraisal.
0 votes
Just.a.guy, Home Buyer, 78746
Wed Apr 21, 2010
Thanks for all the quick responses. This contract is a standard TREC form., and there is a third-party financing addendum. However, the LTV on the contract is very low (< 50%) so that's what i mean about it not triggering a financing contingency... unless the financing condition is an arbitrary trigger I can pull as an out?

Luckily for me I have one day left on that clause to figure out what to do next.

I honestly do think the appraisal is a bit low as well. the 9% figure was the comparables analysis piece, though the replacement analysis put it at about 4%. A friend who is a builder helped me do some analysis on replacement costs before we made the offer, and he's since seen the property and the appraisal and thinks it's probably too low.

Anyway, thanks for the feedback and the pointer to the legal hotline, which I plan to consult first thing in the morning. At a minimum given the short timelines we'll have to do some combination of playing hardball with the seller or extending the contingency period long enough to get it sorted out.

0 votes
Dallas Texas, Agent, Dallas, TN
Wed Apr 21, 2010
Your buyer agent can review the terms and conditions of the executed sales agreement with you. AND 3rd party financing amendment.

I would still doubt lender would issue a mortgage no matter how much money you put as a downpayment lender is also here to protect you for over paying on property.

Who would over pay for a home by $65K

Seller won't be able sell the home for fact same issues over priced lenders will decline the loan.

If you passed the option period what does the 3rd party financing agreement state... In Texas you have XX number of days for lender approval on a loan

No one can render an opinion for or against you unless the entire sales agreement is reviewed.

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
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0 votes
Robert Regan, , Dallas County, TX
Wed Apr 21, 2010
There's a few issues that your Realtor should have taken into consideration as it is often overlooked that the offer of a larger down payment should not be penalized by the lowering of the appraisal condition in the Financing Addendum. Seeing as the appraisal value cannot be used as a valid term to terminate, and you are out of your Option Period, you are in fact limited, but all is not lost. Please contact me and I will be happy to explain some of your options. Your Realtor should also be able to assist you in possible solutions.
All in all, if you like the home, you really should think about the reality of being able to find another home that you have the same feelings about without holding a torch for this one.
Please note that I am no way soliciting you to use my services as you are already represented by a Buyer's Agent and I am only offering you my advice to use as you wish.
0 votes
Todd, , Austin, TX
Wed Apr 21, 2010
I would have them order another appraisal.
Web Reference:  http://homesarehere.com
0 votes
Shawn Rooker, Agent, Austin, TX
Wed Apr 21, 2010
First, I'm guessing you spoke to your realtor already? Second, if you have a third party financing addendum, and if ANY part of the financing does not meet what you have in that addendum, then you can walk. It depends on what you have written in the addendum as conditions. If cannot get financing, you cannot close on a home.

There may be more details here, or other things I do not know, but that is the clearest option I see. There may be other options, we can wait and see if other folks reply here.
0 votes
Bruce Lynn, Agent, Coppell, TX
Wed Apr 21, 2010
You may want to check with your lender or your attorney.
I would wonder if an appraisal this low would meet your lender's underwriting requirements.
I would think not.
I would go back and renegotiate.
0 votes
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