what if appraisal comes lower for house in new jersey?

Asked by Jflt, Elizabeth, NJ Tue Apr 7, 2009

We made an offer on a house in NJ. It just entered Attorney Review. The contract does NOT state anything about appraised value. My question is, what if the appraisal comes back BELOW the priced we offered? Should we ask to renegotiate?

Also, should we have our lawyers state EXPLICITLY a contingency that we, the buyer, have the right to cancle contract if the house appraises for LESS than our offer?

Thank you.

JFLT

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14
Victor Kamin…, Agent, Edison, NJ
Mon Jun 8, 2009
The seller can ask for another appraisal be done at their cost or You will have to renegotiate with the seller or come up with more out of pocket cash (not recommended) because you'd be paying more for the house than the appraiser says its worth.

Do you want to pay more for a house than its worth? If so go for it ;-)
0 votes
Lori Jeltema, Agent, Suffolk, VA
Thu Apr 9, 2009
I really would like to point out again that it depends on what is written into YOUR contract. Most of our contracts have standard verbage but that can be changed. The contract you are using may not have a protective appraisal clause standard in it. If the appraisal comes in low, your contract needs to spell out excactly what your obligations are and what the sellers are. Don't assume you can 'get out' or renegotiate the deal if your contract doesn't give you that right. Just because it appraises low and you don't have the money to make up the difference won't necessarily get you out because you no longer qualify. If you signed a contract without an appraisal clause and you also promised in that contract that 'buyer will have sufficient funds to close'..well, it's not that simple. Better go over the what - ifs with your lawyer or hire an agent to review the negotiations with you.
0 votes
Kenneth Verb…, Agent, PRINCETON, NJ
Thu Apr 9, 2009
I have to disagree with the postings that state merely under appraising is grounds for not getting a mortgage. Often the buyer doesnt even know what the appraisal comes in at. They will know if they have gotten a commitment. If putting down say 50% on a $1,000,000 sale price,and the home appraises at $900K the lender will still likely make the loan, after all they are still lending just $500K on a $900K value property. Assuming a lender will give you an out is a needless risk.
0 votes
Jeffrey Halp…, Agent, Hopatcong, NJ
Thu Apr 9, 2009
If a home appraises less than selling price a buyer and a seller have an out. The financial institution looks at the total value of the home not just the mortgage. They are not telling you not to buy it, but they really do not have to give you the mortgage. Of course, you can have it reappraised (although the seller may request it). But beware because it may just come in less (as prices are falling nearly 1% per month) or will just validate the first appraisal.

You can renegotiate which would be at the best interest of the seller if they receive a reappraisal as stated above.

The question you must ask yourself do you love this house. If so let the finance company know, there is a value to what you believe and they may take that into consideration. Good luck.
0 votes
Armando, , Elizabeth, NJ
Thu Apr 9, 2009
JFLT,

Most of the advice given on here concerning your appraisal coming in lower than the value is fairly accurate. The bank will loan off of the appraised value or the contract price, whichever is lower. If the appraisal does come in lower, the bank will require you to make up the difference with a larger down payment.

Also, if the appraisal comes in much lower, and you need a larger down payment, it can be argued that you no longer qualify for the mortgage, and I assume that your attorney put a mortgage contingency in the contract.

If you have any further questions on the mortgage side of things, feel free to contact me.


Armando Domingos
0 votes
Jeff K, Home Buyer, Bristol, PA
Wed Apr 8, 2009
>> Also, should we have our lawyers state EXPLICITLY a contingency that we, the buyer, have the right to cancle contract if the house appraises for LESS than our offer?

YES. You are still in review so there can be whatever back and forth you like. This should absolutely be in there, as well as inspection congingencies. You'll also need a Good inspector - one with many years of experience.
0 votes
Lori Jeltema, Agent, Suffolk, VA
Wed Apr 8, 2009
Jflt,

First of all, I truly wish that you end up with a very successful transaction and love your new home. What I'm confused about and don't understand is the number of people on trulia that sign offers or contracts and THEN ask questions about what it all means. It scares me!

Were you able to get it straightened out?
0 votes
Kenneth Verb…, Agent, PRINCETON, NJ
Wed Apr 8, 2009
JFLT
As I said in earlier post, YES have your lawyer state it explicitly. Lender rules vary and the amount you put down may make a difference as well as the appraisal but to count on this would be foolish. One example I have seen is where clients putting 20% down on a property that under appraises is that they then have to pay private mortgage insurance. Take precautions now instead of damage control later.
0 votes
Ruth Bonapace, , 07030
Wed Apr 8, 2009
This is a very good question for the current environment.

The mortgage contingency won't always protect you because a lower appraisal doesn't necessarily mean you will be turned down for financing. So, an extra clause in the contract would help. Here is why:

The bank will go off of the contract price or the appraised value, whichever is lower.

If the contract price is $350,000 and you were planning to put 10 percent or $35,000 down, (for a mortgage amount of $315,000) and the appraisal comes in at $340,000, then your choices would be

Make up the gap with 10K plus 10% for a total of 44k

Keep the same money for the down payment (in this case $34,000) but go with a mortgage requiring a smaller loan to value (say FHA) since the value is now lower.

or

Renegotiate with the seller.

In the example above, it is very possible that the lender could meet your mortgage request of $315,000. Then, how would the mortgage contingency help you? Better to be absolutely clear on how this would be handled up front.

Ruth Bonapace
mortgage specialist
ruthbonapace@gmail.com
0 votes
Bill Eckler, Agent, Venice, FL
Wed Apr 8, 2009
Because of the declining market and the often inflated "asking prices" this is becoming very common. Basically, banks will not finance a home that does not appraise fore the sale price. This results in another round of negotiations.......provided both the buyer and seller are interested in working things out. If this can't be accomplished...the buyers normally move on to another opportunity.

The best way to avoid this situation is to do in depth iinvestigation of the local market and base your negotiations on this information not the "asking price" or what you are willing to pay.
0 votes
Laura Gianno…, Agent, Manahawkin, NJ
Wed Apr 8, 2009
A mortgage is contingent upon the house appraising. So the mortgage clause in the contract should cover it. Speak to your attorney though, I don't see why another clause would be a problem.

Laura Giannotta
Keller Williams Atlantic Shore
0 votes
Gina Chirico, Agent, Fairfield, NJ
Tue Apr 7, 2009
JFLT,

If house doesn't appraise for what you offered and agreed upon, most likely the bank will not give you the mortgage. I've found that in the past if you bought a $300,000 and put $20,000 down, your appraisal had to be at least $280,000. With all the mortgage and foreclosure mayham I found that the appraisal must be at least $300,000 in order to get the mortgage. Most likely if the house doesn't appraise for the purchase price, you won't get the mortgage anyway and assuming you have a mortgage contingency...you should be covered.

With all that being said, I'm not an attorney nor am I trying to provide legal advice. Since you are in attorney review, speak to your attorney about this issue first thing in the morning so they may make the necessary changes to the contract before its too late.

Good luck with your purchase.

Gina Chirico, Sales Associate
Prudential New Jersey Properties
973-715-1158 cell
973-992-6363 ext 116
Gina.Chirico@PrudentialNewJersey.com
0 votes
Tracy Freeman, Agent, Maplewood, NJ
Tue Apr 7, 2009
Hi! As, I have not seen your contract and don't know any of the details or your sale, I am speaking here in general terms. You DEFINITELY need to discuss the specifics of your issue with your lawyer and your mortgage loan officer.

But, I can say in general terms, that the problem is when a home appraises for significantly less than the offer/selling price (and depending upon a number of factors, including your down payment amount) the bank may not want to take on the mortgage because the amount of equity in the home may not be enough for them to want to do so. So, if you have a mortgage contingency in your contract you should be covered (have an out) if you cannot obtain one. But, again, you need to review all of this information with your RE Lawyer and your Mortgage Loan Officer. Best of luck.

If I can be of any more help, please feel free to contact me via my website.

-Tracy Freeman
Sales Associate
Keller Williams
0 votes
Kenneth Verb…, Agent, PRINCETON, NJ
Tue Apr 7, 2009
If you arent out of review yet have an appraisal clause added. (your attorney and agent should have suggested this in my opinion as it is a fairly common concern.) The bank comitment could require it and give you leverage though.
0 votes
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