What happens when the home doesn't appraise in San Antonio, Texas?

I have been so fortunate in that in over 15 years, I only have had 2 properties that did not appraise. 

It happens at times, and the language in this eventually is in our Sales Agreements and spells it out.  This is why I go over it with clients because it may happen and as your post points out, there are various scenarios to handle it.

What about option four where we sit down with the seller and tell him that his listing agent is a fabulous salesman.  he is soooooo good that he has managed to find a buyer willing to pay more for the house than it is worth.  All the buyer has to do is have the $5000 extra in cash and he also has to sign a form that says he is certified stupid.  He is so stupid that he paid a real estate expert, Mr Appraiser $350 to tell him and the bank what the house is worth but since Mr. Sellers house is soooooo wonderful , Mr Buyer is ready willing and able to pay more than an expert says it is worth. The bank requires him to sigh the stupid form before they will lend him the money to buy it . for more than it is worth. Mr. Seller can wait for another stupid person and hope the appraiser will appraise it for the price that Mr seller wishes it was worth. Maybe the next appraiser will have an adjustment for sentimental value.  Maybe since our economy is about to sequester to a grinding halt, the next appraise willprobably apprase it for less.

Mr Seller you would be foolish to buy this house back for $295000 ( what an expert says it is worth) so maaaaybe you can sell it to a stupid buyer for $300 ,000 later.  You would be wise to sell it to this buyer for $295,000 and know that you did not leave one dollar lying on the table. 

Don't know about San Antonio, but here we have a 4th option and perhaps even a 5th, both of which I had to use for the first time in years last month. The 4th option would be to negotiate for the seller to pay a portion of the difference and the buyer to also pay a portion. Adding the 5th option would include both agents kicking in some too.  While I am not one who ordinarily discounts or rebates my commission, sometimes it's better to have a smaller percent of something than 100% of nothing and solidify a long-term relationship with a client who will become a source of future referrals,

I totally agree with comment #15 above. Sometimes, they can just split it.

Kristin,

     Great write up!!  I just went through this exact situation.  In my situation there was a $5000 difference and what we did was my seller dropped $2500 and the Buyer agreed on his Seller paid concessions to go from $3000 to $500 which equaled the $5000 shortage in the appraised value.

     Everyone, believe it or not, is very Happy and we close on March 28th.

Kimi Bruno, REALTOR,GRI

RE/MAX of Abilene

Good advice.  We need to be careful when there is a bidding war among buyers that we do not over bid because this can cause am issue also.

Loved the suggestions you made and congrats on the little gold star. Big smile. I cant thank you enough for helping me the other day. I really am grateful.

We recently had a low appraisal - $50K below.  The buyer ended up settling at $25K above the appraisal.  It helps to have other offers waiting, who will pay.  Also, low inventory here in So. California helps in raising those prices where all the comps are short sales. 

Lots of informative and productive discussion here.  it's cool to see your options and the multiplication of options in the comments.  Thank you for starting the ball rolling. 

Kristin, you hit the three options on the head.  We see this all the time in our area, since prices are still coming down for the most part.

We always advise the seller to reduce the price because chances are the next appraisal will be the same or lower...

This is becoming a bigger issue everyday as home prices begin to escalate.  It always takes 6 months to a year for appraisals to catch up and we will see many cases of this in the next year or two.  There are always options.

I don't agree with Ron #14.  

There are differences between "appraised value" and "market value" in my opinion.  Appraised value always looks at historical closings generally negotiated at least 30 days back in history.  In stable markets, this tends to work.

Market value is what a willing buyer and seller agree a home is worth.  When the market was crashing some buyers felt they were getting great deals because the appraisal came in so much higher than what they were paying.  But if the value really WAS that much higher, why didn't the seller get the higher value?  Because the MARKET value was declining and the appraisal process really isn't well positioned to capture this problem.  My market declined about 50% from the peak and I'm sure that most buyers in 2008 and 2009 probably felt they were getting a deal and buying at less than appraisal....and many of them ended up in really bad deals....

In today's market (especially here in the Inland Empire of Southern California) we are having 'low' appraisals everywhere but many buyers are still EXCITED and HAPPY to finance based on the appraised value because they understand that the 'market value' is higher than appraisal and directionally seems to be heading up.

So what happens when a number of these buyers 'pay-the-difference' and the properties are ultimately sold?  New appraisal figures match what they paid!  Voila, the home is worth what they paid.  And in my current market my buyers are seeing even bigger price gains on the horizon.

And BTW, I think that suggestion #2 to rebut the appraisal is KEY.  I find mistakes in appraisals all the time and just recently was able to get an upward adjustment of 5% on an appraisal with a well written rebuttal.  

I agree that if the agent has done the job well when pricing the house should appraise. But I think it's tougher today because of the 3rd party involvement and their use of non-local appraisers. 

When I was an agent we were usually fine as long as they used a local appraiser. When an out-of-town appraiser was called in, all bets were off. They don't know the comps, they don't know local values, and they make a mess of things.

Hi Kristin. The last time that happen to one of my buyers, it was my buyer that made the decision to pay for the difference. We all felt that the appraiser came in to low for that community since values had been steadily rising in that neighborhood.

So, what happens when the appraisal is higher than the selling price, does your client pay more, does the seller increase their selling price? If you were the listing agent and discovered this circumstance, what could you do for your client? Thank you for sharing your reply.

Kristen, I like your rational, systematic approach to solving a problem that's becoming common as prices increase more than appraisers can justify.  I think the listing agent and seller need to ask themselves if the home can be sold for a higher price with conventional financing.  If not, the appraiser is probably correct.  If it can be, do it.  Yes, it can be a tough call which is why the listing agent's market knowledge is vital.

Hi Kristen, this is happening about 50% of our deals.  We suspect it will get worse as inventory tightens.