What Happens if the Home I'm Purchasing Doesn't Appraise?

Hi Michelle -- as you wisely write -- what happens when/if a home does not appraise at the purchase price it depends on the contract.   It's more common in our market that the appraisal contingency is removed to remain competitive when there are multiple offers.  It's a discussion that needs to take place prior to writing the offer.   

Michelle, suggested. Excellent and concise explanation on what happens if the appraisal is shor.t I've never seen an appraiser change the value either.

This is good advice for home buyers and for home sellers that may be facing these circumstances. 

Michelle, I imagine this question comes up quite often. Thanks for the sound advice!

Michelle~ this topic is important for buyers and sellers! Great job laying out the road map on what to do

Very well written Michelle with the exception of #2.  It should state that the difference to cover will be the same percentage of the buyers mortgage.  In other words, if the buyer applied for 75% financing, the difference to make up would be 75% of the $10,000 or $7,500. 

Great information here. I have written about this on my other blog but somehow I did not come across as clearly. Well done!

Over my 19 year career in real estate, I never met an appraiser who didn't go ballistic if anyone questioned their numbers. 

Too bad, because some of them come with pre-concieved ideas about value. That used to happen a lot here when some bank brought in an appraiser who was not familiar with our town. 

Those are the 4 options it comes down to.  Saw some of this in the run up a few years ago.

Has anyone had luck with challenging an appraisal?

I have been fortunate challenging appraisals as the listing agent, as well as times that I am the buyer's agent.  I do an extensive market study for my clients to determine the asking price range for the listing and for my buyer clients in trying to decide on an offer price range. 

The most common issues I have found with an appraisal is the selection of short sale and foreclosure houses, as comparable properties, when the transaction is a standard sale.  I definitely do not consider short sales or foreclosures, as comparable to standard sales! 

For instance, there are way too many variables involved with a short sale that affects the ultimate price.  The agreed upon sales price may have been reached 12 months prior to the ultimate closing date.  There may have been a whole lot of appreciation that went on during that time, but the short sale proceeds to closing at last year's pricing....  Also, the seller's motivations in a short sale transaction may not be for top dollar but for convenience or other reasons.  Rarely are short sales properties or foreclosures in move-in condition, etc...

Appraisal are so often a tricky issue. Most of the time, we have work thur this challenge. Thanks for exampling the various options. 

Great options to know when dealing with appraisal challenges.  Thanks for outlining them. You did a great job!

The contingency to appraise is your client's insurance policy to pay FMV for the property, so anytime, an agent doesn't insert that into the contract offer, he's not looking out for his clients best interest IMO. Naturally, if the client wants to pay a premium to own, that's an option but suppose the appraisal is negative by $20k? 

I have inserted the clause into the purchase contract that the offer is based upon the home appraising at or above market value and it has worked both times. I didn't believe the house would appraise at market, but interesting enough it did. I wonder if the appraiser knowing the purchase price affected their outcome.

Yes, that about sums up the options if a property does not appraise for the purchase price.  I once submitted a 27 page rebuttal to the bank and was successful in getting the first appraisal thrown out, but that was an exception to the rule.

Dallas appraisals have not caught up with many sales prices. Many sellers are unwilling to to adjust the sales price and lenders may still approve  a buyer, if the buyer is putting more than 20% down on the property. This makes number 4 tricky.

Great post you have done an excellent job of explaining the home buyer's options. Have a safe and Happy 4th of July.

Michelle

You've outlined the buyer's options when a home doescn't appraise so well. While no one wants this to happen it does and buyers need to know what their options area, just in case.

Jeff

My very first deal had a 30k appraisal swing. To this day, I wish I would have understood this as well as I do today. I'm not sure we would have done anything different but I always wonder "what if"    great topic!