When appraisal is a concern for both buyers and sellers, how do negotiations proceed?

Asked by Trulia Portland, Portland, OR Fri Apr 26, 2013

Are there any extra precautions a party could take to ensure the negotiations and deal are reached regardless of what the results of an appraisal is?

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Marvin Von R…, Agent, Tigard, OR
Fri Apr 26, 2013
In the 'old days' (about a month ago the way things have been changing---) we would have an appraisal done when listing. Of course in yesteryear we could use any fee apraiser for the loan too. For several years ereal estate agents and mortgage brokers pretty much cant choose and are supposed to have only limited contact, if any so that doesnt work. As a buyer you can write your offer so that the final price is your offer OR whatever the appraisal comes in---whichever is less. If I were representing a seller, we would be cautious about that. Its all a poker game. I value homes for banks that are considering loan modifications or are actually foreclosing. Some are for homes they have already taken. Ive valued opver 3,000 homes all over the tri-county area. Im bank appraisal trained and mortgage underwriter trained and I can tell you that appraising is part art and part science. It should be ALL science but its a terrible market now with other things to consider. All the short sales and REO (bank Real Estate Owned) properties mess up all the numbers. I am often the 3rd or 4th agent called to value a property. The banks sometimes show us the previous values and I see huge variations from the different agents. Value. What is value now? FOR THE PAST 25 YEARS HOMES WERE NEVER WORTH THEIR PRICES. IT WAS ALL FALSE. ALL INFLATED BY THE BANKS. What is the value of real estate? In any given area, its the price that the MOST people can afford, people being Joe and Jane Average Worker. Those people keep our economy going while parasitic professions such as ours (and all 'sales' people) rely on them for our income.

Value is supposed to be taken from the last three most similar homes as close to the subject as possible, also taking into consideration the asking prices of whats available for sale now. What happens when there have been only two sales within the last 9 months and one was 5 miles away? We are facing those problems.At any rate, if the appraised value doesnt work then challenge the appraisal or, as another said, walk away. Maybe you can get sellers to accept your 'or appraised, whichever is less' clause. That will be a pound of Sees candy if you use it and it works. lol
1 vote
Tom Inglesby, Agent, Portland, OR
Wed Jun 12, 2013
I agree with what Linda says to have buyer agree to pay difference if house does not appraise if there were multiple offers when everyone drives the purchase price up with bidding. But the homes seem to be appraising as the market seems to be going up 1%+ a month now. Tom Inglesby, Broker
0 votes
Linda Heinri…, Agent, Lake Oswego, OR
Wed May 15, 2013
As a listing agent you can secure an agreement from the buyer that they will make up any difference between the appraised value and the selling price. Obviously, this only works if the buyer has the cash to fill the gap, but in a competitive bid situation, definitely doable.
0 votes
Gary and Kar…, Agent, Boca Raton, FL
Wed May 15, 2013
This is why many are not allowing FHA - and opting for the conventional route only.

The FHA program is the way to go - if all parties agree.
Web Reference:  http://www.garyyoungman.com
0 votes
Tom Inglesby, Agent, Portland, OR
Tue May 7, 2013
On an FHA appraisal the loan appraisal is stuck to the house for 6 months so if you get a low appraisal you will not be able to sell it for a higher price unless it goes conventional. There is this game that some buyers play to bid the house up and then when the house does not appraise to try and get the seller to drop the price down to the appraised price since all the buyers have since moved on and the earnest money say that the house must appraise for the purchase unlike the old days. If I was a seller I might not take the highest price but one of the higher offers that were cash and a quick close. Nothing is better than cash and a quick close. Tom Inglesby, Broker, RE/MAX
0 votes
Jesse Dill, , 97124
Sun Apr 28, 2013
Have the appraisal done before the home inspection and have longer inspection period to accommodate.
Web Reference:  http://TheJesseDillTeam.com
0 votes
Lana Lavenba…, Agent, Grants Pass, OR
Fri Apr 26, 2013
Buyer and seller have 2 choices-either agree to the price of the appraisal or kill the deal-what else can you negotiate with in this day and age?
0 votes
, ,
Fri Apr 26, 2013
You write "when it is a concern". Appraisals protect both the bank making the loan and the person buying the property. The only person who might be concerned about a low appraisal is the seller not getting what they want for their property.

When an appraisal comes in low the buyer has two choices: renegotiate the sales price to a lowered amount reflected by the appraisal or come up with more money because with a low appraisal the bank will lower the value to what the appraiser has stated it to be which will in turn lower the amount they are willing to lend. Sometimes the Realtor can offer and suggest better comps to the appraiser for review but if they stick with the original value, your only two options are to renegotiate the sales price or come up with a larger down payment to buy the property for more than its current value. Of course there is a thrid option - walk away from the transaction.
0 votes
Let's say the house is selling for $350,000 and the buyer is putting down $100,000, so the loan is $250,000 or 71.4% LTV based upon the sales agreement. Now let's say the appraisal comes in at $290,000 due to a number of short sales in the neighborhood. That makes the new LTV 86% and the buyer would have mortgage insurance and be paying $60,000 more than current street value. If they absolutely have to have the house (say it is the only house available in a school district they want to be in), it is up to them if they want to proceed but today many people are putting down much smaller down payments and would not find themselves in a position to put such large down payments and would find that the 10%-20% they planned on putting down will not fly. Hope that clarifies things.
Flag Fri Apr 26, 2013
If there has been a substantial down payment so that the loan to appraised value is high or a particular ratio, can't the loan go through, or am I wrong?
Flag Fri Apr 26, 2013
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