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My Home Didn't Appraise, Now What??!!!

By
Real Estate Agent with Humphrey Home Connections Realty, Reno, Nevada

My home didn't appraise, now what? This is a question I have been hearing a lot more than I would prefer lately. I have heard it on both sides of the transaction (from buyers and from sellers), and I'm not sure which side is worse. On the listing side, there is nothing more frustrating than negotiating a nice deal for your sellers only to have the appraisal come in lower than one might have hoped. In this case, the question was asked by some young, first-time buyers; here is my response to them:

First of all, stay calm...no one died, everyone's children are safe and accounted for...deep cleansing Game Overbreath...now breathe out very slowly...ok, better? Good! Let's look at your options, because you have several; it's not "game over" yet.

Option 1 - This is not likely to be your favorite. I know how badly you want this house, how you looked and looked and how it met every single item on your extensive (jk, lol) list of requirements. But this is the easiest to explain, so I'll get it over with first. It IS possible for you to exit the deal at this point in time. You can't get a loan for a purchase price not supported by an appraisal, and being able to get a loan was a requirement we specified in your contract. There is almost certainly another home that would suit you every bit as well out there somewhere. Ok, not your first choice, so let's look at...

Option 2 - In this case, the appraisal was only a few thousand dollars less than our contract price. Although the appraisal will limit what you can borrow to buy this particular home, there is nothing that says that you can't make up the difference. Check with your lender; they may want to see some documentation of where the extra money is coming from. Don't have even one single more dime to spare? Well that brings us to...

Option 3 - The sellers can agree to accept the appraised value as the full purchase price. There are several very good reasons they might be willing to do this, and trust me, I will be pointing those out to their agent. First of all, our market is not yet improving in value. Maybe not dropping much, maybe drifting a bit lower, depends on the neighborhood, but the chances of them getting another offer at higher than this appraisal came in are slim. Interest rates have been rising, further limiting the number of possible buyers. And you, like many if not most buyers in this price range, are using an FHA loan. Once an FHA appraisal is completed, it attaches to the property like a barnacle. A new one cannot be obtained for four months. So they will not be able to sell for more than this amount to another FHA buyer for a long time, if ever.

Finally, in your specific case, it just so happens that this house was an investor flip.  The investor is not going to decide to just take it off the market and not move, as some owner-occupant sellers might. It also meant we had to have two appraisals, with the lower being the one the underwriter went with. This two appraisal thing is not your fault; if we had only had the first, we would be good to go. He is still making a Hand Shakenice chunk of change (and good for him! He bought smart and fixed it up nicely). But unless something changes, the 90-day flip rule waiver for FHA purchases is set to expire February 1. He will probably have to wait the full 90 days from his purchase date to even get in contract again, well after we will have closed escrow.

So let's try Option 3 on for size. I think there is a very good chance it will work for all concerned.

Photo credits: Game Over by axeldeviaje, Hand Shake by USFS Region 5, both from Flickr via Creative Commons License

 

 

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Copyright © 2012 Linda S. Humphrey, all rights reserved

 

 

 

 

 

 

 

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Linda S. Humphrey, M.D., CDPE, e-PRO, EcoBroker, GREEN

Broker/Owner - Humphrey Home Connections Realty, LLC

cell: 775-287-4665

office: 775-232-8515

www.HumphreyHomeConnections.com

Comments (9)

Mark Hall
Realty One Group Cascadia - Vancouver, WA
Homes for Sale Vancouver Washington

Nicely stated! The most important part is, of course, the part about the deep cleansing breath. So many people panic in these situations and don't even consider the options.

We have run across this scenario dozens of times and haven't lost a deal yet. A calm and patient approach is all that is needed.

Jan 10, 2011 12:27 PM
Kari Battaglia
Veterans Realty Inc - Venice, FL
Who You Work With Matters!

Linda,

Very helpful post explaining options available in case your home does not appraise, worthy of a reblog.  Thanks for sharing.

Jan 10, 2011 12:40 PM
Linda Humphrey
Humphrey Home Connections Realty, Reno, Nevada - Reno, NV
CRS, Broker/Owner HHC Realty

Mark - I completely agree! I haven't lost one yet either, but calm and reasonable is critical!

Kari - Thanks, appreciate that!

Jan 10, 2011 12:49 PM
Chris Ann Cleland
Long and Foster Real Estate - Gainesville, VA
Associate Broker, Bristow, VA

And with FHA and VA appraisals sticking with the property, not the buyer, the Sellers would be silly if they thought this wouldn't come back to bite them with another FHA buyer...which...let's face it...that's 95% of all buyers in the market.  Great post.

Jan 11, 2011 02:05 AM
Linda Humphrey
Humphrey Home Connections Realty, Reno, Nevada - Reno, NV
CRS, Broker/Owner HHC Realty

Chris Ann - Yep, that is certainly true in our market. I pointed out to the listing agent that her guy could cool his heels waiting for an all cash offer, but he might have better luck buying a lottery ticket. Fortunately, he is a smart guy and saw the wisdom of a bird in the hand.

Jan 11, 2011 03:09 AM
Christine Hooks
Pino Agency - Pennsville, NJ
Celebrating 25 Years in Real Estate!

I think it is most important to double-check the appraiser's work before we do anything else.  It's surprising how many times they make mistakes. 

 

Feb 01, 2011 02:28 PM
Linda Humphrey
Humphrey Home Connections Realty, Reno, Nevada - Reno, NV
CRS, Broker/Owner HHC Realty

Chris - Interesting comment. I haven't found that so much, and I have had zero luck arguing when I felt the comps they chose were not the best.

Feb 02, 2011 12:18 PM
Mark Loewenberg
KW of the Palm Beaches - Palm Beach Gardens, FL
KW 561-214-0370

just had one that was game over for my client, the seller just would not budge... oh well

Dec 30, 2012 10:19 AM
Linda Humphrey
Humphrey Home Connections Realty, Reno, Nevada - Reno, NV
CRS, Broker/Owner HHC Realty

Sorry to hear that Mark. Either your market is stronger than ours or the seller is delusional. Either way, it's a major bummer for the buyer. :-(

Dec 30, 2012 10:55 AM