This issue is common in many market places today. Mortgage lenders will only close/fund up to a specific percentage of the appraised value for refinance and for purchase. When properties don’t appraise for the value necessary to refinance or the agreed upon purchase price most transactions fall out or cancel. In the case of a purchase a home buyer could increase their cash down payment or the buyer and seller could renegotiate the purchase price AND your agent could take the five steps listed below.
1. Read the appraisal and look for errors. Sometimes appraisers undervalue properties because they mistakenly use comps that are not neighborhood comps, sometimes the bedroom or bathroom count is wrong, sometimes the square footage is wrong. On occasion, other neighborhood information is wrong, such as schools. All of this data impacts the final appraised value. If you find errors then dispute the appraisal immediately.
2. If the lender or appraiser refuse to correct the appraisal then ask for a second opinion. Request that the lender consider a second appraisal.
3. Once a true appraised value is decided and the value is still lower than the previously negotiated price then renegotiate. In today’s market your Buyer pool may be primarily FHA buyers who lack cash to make up the difference or the buyer simply does not want to make up the difference. Work with your agent to renegotiate the purchase price. While most Sellers want to avoid this tactic the reality is that once you start over again you may face the same appraisal results with a new buyer and by then you may have lost considerable time.
4. Buyers should consider splitting the difference with the seller. How long have you been shopping for your home? What will you lose by waiting? If you have been looking for a year and think the solution is to wait think again – when interest rates that are so begin to increase a waiting buyer could experience a payment increase of up to $200/month on a purchase price of $300,000. Buyers making a home purchase where they will raise their children will reside in their homes for upwards of ten years which equates to a possible savings of $24,000 in monthly mortgage payments based on today’s lower rates. So if your appraisal came in $20,000 below your negotiated price work on splitting the difference with the seller.
5. If all else fails, extend contingencies and change lenders. A new lender, mortgage banker or broker will have their own appraisal process and approved appraisers that could have very different results.
Stay tuned for more tips on completing successful closings in today’s market!
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