Tuesday, July 10, 2012

Oh no! The Appraisal is Low!

Congratulations! Your offer was accepted on a home! ....But your lender ordered the appraisal and it's less that what you offered for the home...

Is the value hanging in the balance? 
So your appraisal was low... now what?
Get a copy of the appraisal from the lender and open up a discussion with the seller. If it's an FHA appraisal, the appraised value will stick with the home for six months or maybe longer, even if the contract is terminated and another buyer comes in who agrees to the listed price.

Then what?
You have some choices. Some are in the buyer's favor and some are in the seller's favor.  This is where having an agent good at negotiating can really help!
  • Have your agent review the comparable properties selected and the facts, such as number of rooms, age of the property, square footage, etc, in the appraisal for errors.  If justifiable errors are found, the appraiser may adjust the value.
  • Ask the seller to reduce the purchase price to the appraised price. Since almost every buyer needs mortgage funding to purchase a home, it's highly unlikely that the seller will be able to find a buyer who won't be negatively affected by a low appraisal. The worst the seller can say is no.
  • Pay the difference in cash. If you were planning to put a large amount down, you may be able to reduce the amount you were going to put down and still qualify for the loan. Keep in mind that a higher loan-to-value ratio will result in a higher interest rate and higher payments. In addition, if putting less money down brings your loan value to more than 80 percent of the appraised value, you'll have to pay mortgage insurance.
  • Decide on a compromise with the seller if neither of you can afford to drop the price completely or pay the difference in cash. As long as you still want the house, it's better for both of you than walking away from the deal.
  • See if the seller and your lender will allow for the seller to hold a privately held second mortgage. Some lenders will not allow for a total mortgage amount over a certain percent, but others might allow it if your credit is good enough, you're putting enough money down and the lender feels it's an acceptable risk.
  • Get a second appraisal. You may have to change lenders to do this, and there's no guarantee that another appraisal would be higher (it may even be lower). FHA appraisals require the appraiser to register his appraisal to the property, so a second appraisal is not an option in those cases.
A good Realtor® will help you navigate rocky waters such as these.

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