So how can you save a deal if the appraisal comes in low? Deals blow up all the time due to low appraisals and nobody even thinks that there may be an easy solution.
Did you know that with the majority of low-ball conventional appraisals, that the lender doesn't even need to change the program or loan amount to the borrower? The end result is that no extra money comes out of pocket at closing and the deal moves forward.
Let me give you a live EXAMPLE of this from a recent super-low-ball appraisal we had.
The contract price was $550,000. And yes, it was bid up well over the sales price. Offer was with financing of 20% down, so the borrower was getting a loan of $440,000. The appraiser came in 50k low. Killer right? Nope. The clients wanted the house, but instead of flipping out, we had prepared them with a back-up plan at the time of offer.
The idea is that we would still loan them the $440k. But wait! What happens now that the client is effectively, in the lender's eyes, putting down less than 20% Isn't there PMI? Nope. The lender can get rid of the PMI by a small increase to the rate. Typically you are looking at about a .125% to max .25% in rate. In this case, due to the borrower's steller credit and borrowing more than $417,000 the increase was only .125%.
The key here is there is normally a way to save a low appraisal with the above trick, but it is very much in the interest of the realtor and lender to prepare the borrower in the event of this happening. In retrospect you could actually waive the appraisal knowing you have this in your back pocket making your offer much stronger.
See my previous blog on how clients and their agents can win more offers.
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