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?