04 April, 2014

What if My Home Doesn't Appraise?

In sellers' markets, high demand can generate multiple offer situations that often drive up the purchase price higher than any comparable sales in the area.

If the buyers are relying on financing from a bank to purchase a home, a low appraisal can scuttle a deal. Banks require appraisals to verify that a home's sale price is supported by its market value.

What can a buyer and seller do if a home does not appraise?

 a)   Buyer can make up the difference in cash.   The lender cares about the appraisal only to the extent it affects the loan-to-value ratio. A low appraisal does not mean the lender won't lend. It means the lender will make a loan limited to a specified percentage of the appraised value.

b)   Dispute the appraisal.  Either the seller or the buyer can pay for a second appraisal. If the parties find out that the appraiser is not familiar with the local market, or an appraiser made mistakes they have the right to contact the lender to demand a second appraisal.

c)        Appraisal review. The buyer or seller can ask their agent to put together a list of recent comparable sales that justify the agreed-to sales price including the pending sales and submit that list to the underwriter and ask for a review of the appraisal.

d)      The seller can offer to carry a second mortgage for the difference.  If the seller wants the deal to go through but the buyer cannot come up with the difference in cash, the seller may agree to carry a second mortgage.

e)   Cancel the transaction. If checked, the purchase contract gives the buyer the option of having an appraisal contingency that allows the buyer to cancel the contract and requires the seller to release the buyer's earnest money deposit if the appraisal comes in low.

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