When House Doesn't Appraise High Enough

Question

Hi I'm new to the BP community. I would like to understand the process when you've bought a property either a rental investment property or primary residence, and the house doesn't appraise for the value of what you agreed to buy it for. What happens then?

Joe Villeneuve · Answer

Then you don't buy it...at least for the agreed upon price. The appraiser is God in REI as far as property values. That low appraisal just gave you an engraved invitation to renegotiate the price lower.

Account Closed · Answer

You can do one of several things. I'm assuming you mean using bank financing on this and the appraisal comes in low. I'm guessing you have a clause in the contract to address this. So, typical options are:1) Come to closing with the cash difference2) Do a different appraisal3) Walk away4) Seller reduces price to appraisal amount (sometimes the seller will but not always)

Joe Villeneuve · Answer

Missed the point entirely. If you are paying $2,000 over what it's worth you are not making it.

Mike Cumbie · Answer

Hi @John Michael,For your first part (If you are my buyer and purchasing for an investment NOT a primary residence): Never pay over appraisal price. We will go back and get them to adjust. If not we will find something else.If you are my seller and it doesn't appraise: We fight the appraisal, try and see what it was lacking, try and explain adjustments, possibly pay for a new one. We also explain to the buyer why they should be paying more and it really is worth the price and that they only have to bring another $40,000 to closing.As far as with the inspection. If you are my buyer then every thing wrong is a travesty of justice and what are they trying to get away with? It is so much work to get it up to par, I mean just hiring an electrician to replace that broken outlet cover is going to eat up $180.....If you are my seller: Everything is just normal wear and tear on a property. What are you expecting at this price point? That's why we put it at the price point in the first place. To get that fixed it is like $1.80 at Lowes.....So it is all dependent on your perspective.

Joe Villeneuve · Answer

I pass. I don't rationalize that I'm worth $500/hour, so I'm only spending 4 hours in losses. My time is not worth any $/hr...it's only worth positive numbers. It's only worth $500/hour if you're making it...not losing it

Joe Villeneuve · Answer

I couldn't agree more with @Mike Cumbie about it being better to walk away and lose your Inspection Fee, than lose money over and over and bigger right out of the gate.

Mike Cumbie · Answer

Here are the rough steps at least in my part of NY1) Agree on contract price get all paperwork together2) Attorney approvals3) Buyer applies for loan4) Inspections/repairs 5) Loan officer sends out appraiser6) Commitment7) Title work8) Lender issues clear to close9) CloseAny of those could be 10 seconds or 80 pages of paperwork depending on the specific deal going on (loan type, amount of inspectors they want etc).But if it does not appraise odds are you are losing your inspection fee at a least, but it is better than grossly overpaying for a property. That is why your agent and you should be making sure the property will appraise before putting in an offer. Generally speaking before offering on a property someone should have ran some comps and be able to say that it will go at that price. If not it is just guessing.

David Faulkner · Answer

I agree with Ken's comment and would add that if you are in escrow where this is even a remote possibility, then you are probably trying to purchase deals that are way too thin IMO.

Account Closed · Answer

Lol (I am making that, and more, on my investments - the secret is that I don't have to worry about getting a bank's approval to do the deal since I buy off market, Subject To and this frees me up to do deals I wouldn't otherwise be able to do ;-)

Account Closed · Answer

@Joe Villeneuve What if the appraisal is $2,000 less than the agreed upon price and the seller won't budge? If you like the house it is worth the extra money when you consider the time spent finding the next one. My time is worth $500 per hour and I'm sure it would take more than 4 hours to put another deal together.I was a loan officer and I would see a 10% difference between two appraisers doing the same property. An appraisal is an OPINION of an appraiser, not science. ;-)