A low appraisal threatening to scuttle a deal.

[Alexander Lommel]

So, we're in contract on a property. The asking price was 565,000 and we're in contract for $555,000. The appraisal just came back $91,000 below original asking at 474,000. The seller doesn't have a lot of equity in the property but is sitting at 14 years into a 30 year note. (I'm pretty sure she crapped a brick when the appraisal came back so low too). If she doesn't have the equity to pull out of the property I think she won't be able to sell at that price. We're willing to pay a little over the appraised value but nowhere near what the contract price was.

I'm considering approaching the seller about using a wrap around mortgage to move forward with the deal. I could pay whatever is needed to get any equity out she needs and then assume the mortgage at almost the midway mark of her loan and have an effective interest rate much lower than what we would have had through traditional financing since the interest to equity portion of the loan would be greatly in our favor.

All that being said I've never done anything along these lines and wanted to put it out there to see if anyone has some sage advise for me on how to proceed. I'm also concerned that switching over to a side deal and cutting out the realtors would leave a bad taste in their mouths. (even if they did screw up the listing price by $91,000). So if there's a way to avoid upsetting them in the process I'd like to keep that on consideration. I like to be able to look everybody in the eye when I go to the grocery store. 

Thanks in advance.

[Jon Holdman]

I've been in a situation like this as the buyer.   You're in a good position.  Keep in mind that houses are nothing but piles of bricks and sticks.   With a few exceptions, there are always more properties.   Play hard ball.  The appraisal is the best information you have about the value of the property.  Thank your lucky stars the appraisal came in where it did.  Offer that.  If they say no, keep looking.  Done deal.  No need for anything creative (i.e., some way to overpay without feeling too bad about it.)