Whenever an appraisal comes in under contract price, I have to work quickly to consider all options with the other agent and my buyers. We can usually resolve appraisal issues quickly, if everyone is responsive. Below are five of the options available when an appraisal comes in under contract price.
This approach can be surprisingly effective, as long as there is adequate data to support the rebuttal, and if the Appraisal Management Company is local and well-managed. A friendly warning that rebuttals almost never work for VA financing, however, as the VA uses national appraisers who face little recourse for inadequate reports.
Lenders will only lend against the lower of the appraised value or contract price. If an appraisal comes in $25,000 under contract, buyers must bring in that $25,000 over and above their original down payment. If the buyer lacks sufficient cash to cover the shortfall, we must hope another option will work.
For example, a buyer planning to put down 20% on a $500,000 purchase could instead put down 10% if the appraisal comes in at $450,000. This buyer could then get 80/10/10 financing and be “out of pocket” about the same amount he would have been out originally if the appraisal had come in at contract price. Buyers can also switch to FHA financing and only come in with a 3.5% down payment. We have performed these “financing switches” many times to salvage transactions when appraisals come in low.
This option is often not viable in a competitive market, when sellers have ample backup offers. That said, we have seen some realtors work wonders with price reductions by appealing to the seller’s desire to sell quickly and easily. Usually by the time the appraisal is in, we have full loan approval and can sweeten a price reduction with a removal of all contingencies.
This can only be done if we can prove there are severe “quality issues” with the appraisal. We cannot just order a new appraisal because we don’t like the result or the value conclusion.
During an escrow a Realtor needs to work with a lot of different parties to ensure escrow will close timely and successfully. Since I do this every day, you as my client don’t have to worry about all the little details during a real estate transaction. That is what I’m here for to pull all the parties together and have everyone working on the same goal, which is closing your escrow smoothly. Should you have any questions or thoughts about real estate or want to explore my service I have to offer, please feel free to reach out to me via phone or text at 650-224-8963 or via e-mail at email@example.com.
Make it a great day,
CA BRE# 01213968