What to do if a appraisal doesn’t come back for what you offered

Question

I had an offer accepted yesterday but the seller said that if the property doesn’t appraise for what I offered then I will have to cover the difference(offered 315 and it was listed at 300). I then tried to put in the contract that if the property doesn’t appraise for 315 then we can discuss and make a decision on how to move forward from there. Because I do not have an extra 15K to be able to pay for that on top of rehab , down payment , closing costs etc. The seller refused and now he is saying we have to make an agreement before the appraisal on what we will do if it doesn’t appraise for 315. Such as us splitting the difference or me covering the difference. Does anyone have any ideas on how I should move forward? Especially since I can not afford to do what the seller is asking. The seller has been a pain throughout the whole process from showing me the property to now and part of me feels as though that he knows it will not appraise for 315. (Property is a Duplex and I plan on house hacking it)

Steve Vaughan · Answer

Well obviously you can't commit to some blank check with no cap.

If I really liked the house enough to deal with this seller, I'd offer at $302 with an escalation to $315 if the appraisal says it's worth that.   Then  maybe $5k max I'd put in as a cap.   Then wish this a hole good luck and move on.  Seriously.

Chi Tang · Answer

Hi All,

I'm in the same position, I went into contract for a new construction duplex on the outskirts of San Antonio, TX.   The property was expected to appraise up to purchase price but appraisal value came $19K under.  The deal was brought to me through a real estate agent/property mgmt company and I was assured it will appraise for the purchase price. As such, what options do I have?

Ryan Kelly · Answer

@Austin Haynes this is a contract question and will depend on your state how everything is agreed upon. You want everything in writing before you go under contract. Either you are going to have a financing contingency that allows for renegotiation or termination if the property doesn't meet appraisal value OR you are waiving that contingency and paying the difference between the appraisal and contract price. It's extremely common for buyers in the Austin market to waive the appraisal contingency to win in multiple offers, which means they are removing their right to terminate or negotiate if the appraisal doesn't meet value. Don't leave anything to a verbal agreement with the seller. If you have a Realtor, they should be able to guide you on how to include these details in the contract. If you don't have an agent, spend a few bucks if you wish and contact a real estate attorney.

Franklin Romine · Answer

Get it in escrow, get the appraisal and cross the bridge when the time comes.  Seller will be warmer knowing its in escrow and the sale is going down the assembly-line.

Matthew Crivelli · Answer

Sometimes you have to walk away. What I think, the seller knows it's not worth 315k and is trying to back you in a corner to over pay for the house. If you don't want to overpay move on to the next one.

Russell Brazil · Answer

The fact is it has a 99% chance of appraising.  But, if you dont have the cash to make up a short fall for the 1 of times it doesnt, then you simply dont have the cash.

If you are using conventional financing, you can agree to switch lenders to get a new appraisal if it doesnt appraise the first time. There would be virtually impossible for it to not appraise the 2nd time.  If you are using FHA, that will not work though as the appraisal sticks with the property, so switching lenders wouldnt matter.

Theresa Harris · Answer

If you can't afford what the seller is asking, tell them that.  If they don't agree to your terms, walk away from the deal.  Steve's idea of an offer of $302K with an escalation clause up to $315K with the appraisal is a really good one.

Chi Tang · Answer

@Austin Haynes  I want to apologize for hijacking your thread and I hope you've gotten your property sorted out at the end or have moved on to the next?

@Bryan Noth -  The appraisal came under so the lender can only lend out max per appraisal and suggest to renegotiate the price with the seller (I supposed that is the builder).

The agent says it should support the contract price but there are no similar comparables to my model that have closed in my community.   He suggests reappraisal but if no comps sold recently, wouldn't appraisal value be the same i.e under contract price?

I plan to use the same agent's company to manage the duplex so I was hoping with the closure of this deal, it will be the beginning of a relationship....

I feel kind of stuck in the middle because it's a he-said/she said, while my locked-in rate is ticking to run out soon.

Best,

Ceci

Bryan Noth · Answer

Buyer approval is simply the buyer becoming qualified to borrow.  This is based on factors such as DTI, income, reserves, credit, etc.  The part you want to look for @Chi Tang is the waiving of your right to terminate based on appraisal.

Appraisal is what determines the value of the property and consequently the maximum amount the lender can lend.  Your agent and lender can submit a reconsideration of the appraisal (if the buyer wishes) but there is no guarantee they will change anything.

It is important to note the appraiser works for the lender, not you. I would check with the lender if they can perform a second appraisal because I am almost certain it will get flagged by underwriting.

Chi Tang · Answer

@Bryan Noth see above

Regards

Ceci

What to do if a appraisal doesn’t come back for what you offered

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