If your loan is an FHA or VA, the buyer has the option to cancel the contract and receive return of earnest money if the appraised value is less than purchase price. The buyer can also come out pocket with the difference, ask the seller to reduce the price to appraisal, or split the difference with the seller.
The loan is always calculated on the lower of the sales price or appraisal.
On a conventional loan your State preprinted contract may or may not include an appraisal condition and/or your agent may or may not have included one in additional conditions. Check your contract.
Although Fannie & Freddie guides allow for comps to be 12 months old, lenders (especially in declining markets) are requiring comps within last 3 months. Also if the majority or only sales in your area are foreclosures or short sale, they are your comps and are included in calculating value.
Believe it or not this was a common occurance at the height of the buying frenzy a few years ago. It is certainly more common today as pegging the correct price for a home can be like catching a falling knife. Using the completed appraisal as leverage, you basically have 3 options assuming you had an appraisal contingency in your contract (surely your agent protected you!):
1. Renegotiate your contract price with the seller to match the appraised value
2. Honor the contract price, accept the lower mortgage offered by the bank and make up the difference out of your own pocket
3. Walk away and find another home you can't live without
This happened to my wife and I 1.5 years ago when buying our home. We chose door #3. We were upset naturally, but within a month we closed on a better home for us at a lower price than we had set out to pay originally.
Hopefully the market rates are better now than when you had locked in on the first home as those don't tend to be transferrable between properties once the appraisal has been reviewed.
This depends on what the contract states with obtaining a mortgage. If you made the contract contingent upon obtaining a loan and you can't get one because the appraisal came in high, then you should be able to cease the contract right then.
If you did not make the sale contingent on a loan, then I do not see an easy remedy except for getting with your agent to see if they would consider a lower amount.
But I really cannot give any proper advise without stepping on toes.
Hope that helps.
This kind of thing is happening more often in todays market due to lenders tightening up their lending criteria. It has actually happend to a buyer of mine recently. There are a few ways to go about this. You can have a second appraisal done and have your realtor provide comps to the mortgage company that are better in line with the agreed upon price. Or you can renegotiate the sale price with the seller based on the appraisal you have been given. If the seller is not willing to come down and you are not willing pay the difference out of pocket in a down payment then you can void the contract.
It isnâ€™t uncommon for a bank when foreclosing on a home to obtain an appraisal and multiple BPOâ€™s(broker price opinions) from various real estate agents. A BPO is not an appraisal, but gathered information of recent comparable sold homes, listed homes, and a statement of what that agent feels the home will sell for. The bank gatherâ€™s this information from multiple sources at times because they know that know two opinions will be the same. So they take what information they get, analyze it and come up with a value they think the home will sell for.
Iâ€™m sure youâ€™ve asked yourself if you should walk away from this house. Hopefully you have that option in your contract. If you wantedâ€¦. it isnâ€™t taboo for you to appeal an appraisal, by asking your agent to pull comps and then submitting it to both the appraiser and the bank. These comps have to prove that the value is there. An appraiser usually uses 3 or 4 properties when completing an appraisal, maybe they missed a home that sold, who knows? You will be responsible for the cost of the second appraisal or get the seller to split it cost or have them pay it all together.
With that said, again it all depends on how badly you want the house. As a buyer of course youâ€™d rather the lower amount, but not always will a seller feel that way. In reality itâ€™s the buyer and seller together who set market value, itâ€™s what a buyer is willing to buy it for and a seller is willing to sell it for.
Good luck to you!
Most contracts will allow you out in these circumstances. You also should consider that if the house is only valued at $$ then the seller will likely only receive $$ and may not be eager to walk away from a fully qualified Buyer for the lessor amount. Your agent should be able to answer these questions easily in looking at the contract . Please tell me you are represented by a Buyer's agent...