Hi everybody and thanks in advance for answering my question! I have 24 hours to respond to the buyers so I hope somebody will provide me with some direction. I recently listed a rehabbed property for sale at 539,000. I had multiple offers ranging from 545,000 to 550,000 in the first 24 hours! I locked up an offer for 545,000 that could close in 3 weeks, and put two offers for 550,000 in backup position. The inspection went well, but the appraisal came back at only 515,000!!! The property is really unique and is hard to put a solid value on... but we went to the appraiser and said hey, here are multiple offers for 550,000 so that's what the market says the property is worth! Well, that didn't work very well obviously. So the buyers said they will come up with a cash difference but only up to 534,000 purchase price. There is 12 days until closing now. Do I say no way Jose and go with the backup offers, essentially starting a 30 day closing clock over, and risk the inspection not going as well and possibly another low appraisal? Or do I just take the very small profit at 534,000 and try not to be greedy? To wait an other month for an extra 15g when I have a guaranteed pay day in 12 days... (oh, and my holding costs are astronomical at 3,600 per month!)

Its largely out of the control of an individual seller.....but not out of control of an agent. If the appraiser that is assigned is known to be difficult, the agent should get a new appraiser assigned first off. Then the agent should be supplying comps to the appraiser to justify the price and should be able to communicate with the appraiser the value of certain items, and understand what items add value or take away value on an appraisal as opposed to in the market. This means the agent should know that a bathroom adds $X in value in a certain neighborhood or a garage adds $Y in value in a different neighborhood. They should be able to communicate the difference in the condition scale as well as the quality of construction scale. Those are a few thoughts off the top of my head. Working with the appraiser is a skill, but not one everyone has. If someone has sold many houses its hopefully a skill they have honed over the years, and when thats happened you wont have problem getting a house to appraise.

Sounds like your agent dropped the ball here by either not knowing how to work with the appraiser or not understanding the comps. Or if you were selling it fsbo, this illustrates the most important job the listing agent has on a flip, getting the property to appraise.

It is unlikely an individual seller will be able to do what the agent is able to do for several reasons. First the appraiser knows that they are going to run into the agent over and over again...so their business depends on making nice with the agent or they will keep getting the appraiser reassigned off their properties. The other is that agents have done this dozens and hundreds of times...and have likely taken appraisal classes or classes and training on how to work with the appraiser. The seller simply doesnt speak the language of the appraiser, This is one of the main reasons that FSBO sales fall through. So save on the commission...maybe, but that is often offset by even a larger amount in the lower appraisal price that you will be lowering the sales price to. And keep in mind that an FHA appraisal is going to attach to that house for 6 months. On the buy side I actually like purchasing a FSBO for a client because I know they are going to get a killer deal after the price is adjusted after the appraisal, as well as being able to negotiate absurd seller subsidies or repairs after an inspection since the seller doesnt know what is customary in the market.

Hello @Daniel Beaulieu Ahhh the good 'ol appraisal dilemma. To put it frankly I would go ahead and accept the offer of 534,000 because there are not many times that a buyer will up the cash difference knowing that the home is not "worth" that. To my knowledge as the seller there is not much you can do on the appraisal side unless the buyer talks to the lender about requesting another one. But this request would probably be denied unless there was good proof that is was done incorrectly or used bad comps. At this point I am not even sure contractually you are allowed to go with a backup offer as there are no grounds to not accepting the sellers offer. Unless it would be due to it not being the 545k they offered initially, but being based contingent on appraisal I don't think that applies anymore. Normally you would be the one to drop the price to the 515k so for them to still want to pay a difference they must really love the home. I say let 'em have it if it's a win-win on both sides. I wouldn't call it greedy for wanting what you put into it, but they say don't bite the hand that feeds you. Best of Luck, Nick

Don't panic if the appraisal comes in low. It's tough to remain calm when it appears the pending sale will fall apart, but both parties have options: • 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 based on the ratio agreed to in the contract at the appraised value. Sometimes the buyer's lender will not allow the buyer to give cash for the difference and, in that event, have the buyer pay instead some of the seller's closing costs. • The seller can lower the price. If the home was overpriced or the value was inflated, often this is the best solution. It makes the buyer happy and the lender is satisfied. There is no guarantee that if the buyer walks away, the seller won't receive a low appraisal from the second buyer's lender, not to mention the time and trouble it takes to sell the property again. Sometimes a bird in the hand is best. • The seller can offer to carry a second mortgage for the difference. If the buyer really wants the home but cannot come up with the difference in cash, making payments or a lump sum payment at a later date to the seller is an option. After the escrow closes, sellers often retain the right to discount the second mortgage, sell it for less than face value to an investor. 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 based on the ratio agreed to in the contract at the appraised value. Sometimes the buyer's lender will not allow the buyer to give cash for the difference and, in that event, have the buyer pay instead some of the seller's closing costs. If the home was overpriced or the value was inflated, often this is the best solution. It makes the buyer happy and the lender is satisfied. There is no guarantee that if the buyer walks away, the seller won't receive a low appraisal from the second buyer's lender, not to mention the time and trouble it takes to sell the property again. Sometimes a bird in the hand is best. If the buyer really wants the home but cannot come up with the difference in cash, making payments or a lump sum payment at a later date to the seller is an option. After the escrow closes, sellers often retain the right to discount the second mortgage, sell it for less than face value to an investor. Order a second appraisal. First, if your loan is an FHA loan, ask the lender for a list of approved appraisers. Either the seller or the buyer can pay for the second appraisal. Sometimes the second appraisal will come in higher than the first, especially if the first appraiser was inexperienced or made mistakes.If your loan is a conventional loan, then it is subject to the rules of the home valuation code Barb Torres, an accredited senior appraiser says, "As soon as the parties find an appraiser is coming out who is not familiar with the local market, they have every right to contact the lender (preferably in writing) to DEMAND a local appraiser be used." Ask the agents involved to put together a list of recent comparable sales that justify the agreed-to sales price. Submit that list to the underwriter and ask for a review of the appraisal. Try to use comps closer to the subject property than the comps used by the appraiser.Also, ask the agents to call the listing agents of pending sales to try to find out the actual sales price of those properties. Listing agents do not have to disclose the sales price, but many are happy to help out because they could find themselves in the same situation. You can always ask if the agent thinks your price will appraise if the agent refuses to divulge the pending price.Compromise on the value. Sometimes sellers will back off a little bit on the buyer paying the entire difference and will settle somewhere between a full cash contribution and completely lowering the price. Regarding a difference of say, $10,000, a seller might agree to accept $5,000 in cash and lower the price by $5,000.Cancel the transaction. Many purchase contract contain a loan contingency . If the appraisal comes in low, the buyer does not qualify to buy the property at the agreed-to terms in the contract. A properly written loan contingency allows the buyer to cancel the contract and requires the seller to release the buyer's Ernest money deposit Likewise, the seller might sell for more by putting the home back on the market and looking for a new buyer. As long as the low appraisal was not FHA, the new appraisal could be very different. FHA appraisals are assigned a case number so if the first buyer was FHA and the second buyer was FHA, the same appraisal would be used. • Order a second appraisal. First, if your loan is an FHA loan, ask the lender for a list of approved appraisers. Either the seller or the buyer can pay for the second appraisal. Sometimes the second appraisal will come in higher than the first, especially if the first appraiser was inexperienced or made mistakes.If your loan is a conventional loan, then it is subject to the rules of the home valuation code Barb Torres, an accredited senior appraiser says, "As soon as the parties find an appraiser is coming out who is not familiar with the local market, they have every right to contact the lender (preferably in writing) to DEMAND a local appraiser be used." First, if your loan is an FHA loan, ask the lender for a list of approved appraisers. Either the seller or the buyer can pay for the second appraisal. Sometimes the second appraisal will come in higher than the first, especially if the first appraiser was inexperienced or made mistakes. If your loan is a conventional loan, then it is subject to the rules of the home valuation code Barb Torres, an accredited senior appraiser says, "As soon as the parties find an appraiser is coming out who is not familiar with the local market, they have every right to contact the lender (preferably in writing) to DEMAND a local appraiser be used." • Ask the agents involved to put together a list of recent comparable sales that justify the agreed-to sales price. Submit that list to the underwriter and ask for a review of the appraisal. Try to use comps closer to the subject property than the comps used by the appraiser. • Also, ask the agents to call the listing agents of pending sales to try to find out the actual sales price of those properties. Listing agents do not have to disclose the sales price, but many are happy to help out because they could find themselves in the same situation. You can always ask if the agent thinks your price will appraise if the agent refuses to divulge the pending price. • Compromise on the value. Sometimes sellers will back off a little bit on the buyer paying the entire difference and will settle somewhere between a full cash contribution and completely lowering the price. Regarding a difference of say, $10,000, a seller might agree to accept $5,000 in cash and lower the price by $5,000. • Cancel the transaction. Many purchase contract contain a loan contingency . If the appraisal comes in low, the buyer does not qualify to buy the property at the agreed-to terms in the contract. A properly written loan contingency allows the buyer to cancel the contract and requires the seller to release the buyer's Ernest money deposit Ask the agents involved to put together a list of recent comparable sales that justify the agreed-to sales price. Submit that list to the underwriter and ask for a review of the appraisal. Try to use comps closer to the subject property than the comps used by the appraiser. Many purchase contract contain a loan contingency . If the appraisal comes in low, the buyer does not qualify to buy the property at the agreed-to terms in the contract. A properly written loan contingency allows the buyer to cancel the contract and requires the seller to release the buyer's Ernest money deposit • Likewise, the seller might sell for more by putting the home back on the market and looking for a new buyer. As long as the low appraisal was not FHA, the new appraisal could be very different. FHA appraisals are assigned a case number so if the first buyer was FHA and the second buyer was FHA, the same appraisal would be used.

I had similar situation, House appraised by a VA appraiser done for buyer at 434, I had contract for 448, I had option of doing and paying for my own appraisal, cancelling the sale, or trying to figure out if buyer could come up with the extra cash.. I was told I would have to disclose to any other buyer what the appraisal price came in at if I cancelled the sale if I sold FHA to any other buyer,, I was frustrated,, I worked with the buyer lowered the price to 438 and if I ever sell something again I will have my own appraiser come out appraise the property and get a good idea of listing price, even with comps my agent said were within the scope that we could contest the first appraisal, the time we were off market and contingent was eating up more profit and to relist I was taking chance that I had missed some of the best days of the summer putting off a closing from July to maybe Aug to Sept and that was chancing at same or higher price offer.. That agent made 27 K from the sale and I had a hard time forking over that after all that had happened.

@Daniel Beaulieu..."A bird in the hand is worth two in the bush"...Keep it Moving...GL

I think I'll just go with the 534,000 and call it a day and be happy with my profits (since I was originally thinking to list it at 529,000 anyways.) Thank you guys so much for responding!

What to do when an appraisal comes back low when selling!!??

Dan BeaulieuPro Member

OP

Lender · Knoxville, Tennessee (TN) · Member since 2016 · 422 posts · 667 votes

9y

Originally posted by @Dan Bryskin:

@Dan Beaulieu

1. I'd take a reduced price, but you have a couple of option

2. You can request / offer to pay for another appraisal. You stand to loose a few hundred dollars but may gain more.

3. Carefully look at existing appraisal. I had appraisers miss 500 finished square feet before, ignore 10s of thousands of dollars worth of updates and what not. I almost always provide them with my own comps. I think appraisals are too important to be left to chance, I always walk through the house with the appraiser, comps in hand, list of improvements / cost typed, pointing out everything.

4. Consider sending appraiser an e-mail listing what he missed, state a reasons why you think appraisal could / should be higher

Good luck

Great advice! Thank you

What to do when an appraisal comes back low when selling!!??

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