Seller's Concession vs. Low Appraisal

[Nyle Emerson]

Hi guys,

I'm about to sign a contract for my first purchase as a homeowner. It's a two-family in Brooklyn with a furnished basement. It's a bit out of my price range at $667,000, so I'm using FHA with 3.5% down, and seller's concession to cover the closing costs, about 5% of the purchase price.

I had a couple of questions about the appraisal process, particularly about renegotiating the seller's concessions if the appraisal comes back low. At the advice of my agent, I don't have an appraisal contingency, which is common in NYC's hyper-competitive market. However, I do have a mortgage contingency.

As I understand it, there are three scenarios that could happen during the appraisal:

• Option A - The lender appraises the house for the full purchase price of $700,350 or more. I am able to use the full seller's concession, and I ride off into the sunset.
• Option B - The lender appraises the house for $667k or lower, and I have to come up with the full closing costs myself.
• Option C - The lender appraises the house for somewhere in between $667k and $700,350.

Here are my questions;

• (1) If Option C happens, will I be able to renegotiate the Seller's Concession? For instance, if the house appraises for $687k, will I be able to renegotiate the seller's concession from $33,350 down to $20,000, and pay the remaining $13,350 myself? Is this common/uncommon? 
• (2) In the case of Option B or C, is it a better idea to use an FHA 203k limited/streamline, so that the appraisal is based on ARV or "as-Complete" instead of the traditional process? Would this make it easier to write the seller's concession into the loan?

• (3) If Option B happens and I'm not able to come up with the full closing costs myself, would I be protected by the mortgage contingency, since I technically wasn't able to secure a loan for the full $703,500? Or will the seller be able to keep my deposit?

[Matthew Porcaro]

@Nyle Emerson

The 203k allows you to have a loan at 110% of after renovated value so it could buy you some wiggle room.

If your appraisal comes back too low, the reality is you’re not buying right.

In the NYC market right now especially, there’s no reason to be overpaying for a property.

Keep all the concession as you’ll need it for closing costs. If the appraisal comes back too low, renegotiate the purchase price. Contingency or not.

Everything is negotiable in real estate.