Trying to Stack on Buyer's Closing Cost but Afraid of Appraisal Issues?

Real Estate Agent with Keller Williams Realty

Buyer loves the home but needs closing cost assistance.  There are many facets that need to be addressed before the offer is executed to protect both buyer and seller. 

Smart questions to obtain answers on the front end to head off disaster.

•1.  Is the amount reflected for the buyer's closing cost on the contract conform to the guideline limitations for the type of loan that is acquired? 


•2.    Do you have in place a lender's pre-approval for the loan amount and terms of the contract?  Listing agents, be reminded to validate that the letter is current and visit with the loan consultant to get a comfort level as to the professionalism if you do not know the parties involved.  If you have some concerns with the lender choice, make it a stipulation that the buyer will have to be overviewed by your trusted lender source.  We all know of the fly by night companies that hand out pre-approval letters like candy that are not worth the paper written on.  Be comfortable of the buyer's ability to purchase the home.  The best gift you can give yourself and your client.


•3.    Does the contract exceed the list price of the property?  This can be a red flag.  If the home has been on the market at the same price for a long period of time, no appraiser is going to value over the list price unless there is some condition improvement or very valid reason.  (Stacking closing cost is not a valid reason).


•4.   Will the home appraise for value?  Be proactive in doing your homework to see if the value is supported in the market place.  If you feel there may be an issue because your home is superior in finish to some of the recent sales then do research and get the information together regarding the points of difference of the properties.  Make sure the appraiser is given your comparable sales prior to the appointment or meet the appraiser at the home to hand it personally to him/her.  Make sure you provide meaningful comparables and have sources to note issues on the other properties that you may be aware.  For example a sale may have smoke odor.  Place a notation on the sale regarding the odor issue and cite the listing agent for verification. 


•5.   Make sure the home has not had a FHA appraisal on it within the past 6 months (home may have been under contract and it fell out).  If it had validated that the appraised value is for your contract price or higher.  A FHA appraisal remains with the home for 6 months.  The only reason it would be reconsidered is there is a condition change or some very valid reason.


•6.    Be aware if there are repairs that are needed on the home and the buyer has gone to the limit of their assistance amount then there will be no room for seller picking up some closing costs in lieu of repairs.  Another method to negotiate this issue will need to be explored.

Buyer closing costs are a reality in this market.  By being proactive on the front end can pave the road to a smooth transaction and a CLOSED SALE!!

Comments (10)

Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

Connie, if the appraisal won't come back for the sales price of the home, the whole deal might fall apart. Great questions and thoughts you provided everyone here.

Feb 05, 2009 12:06 PM
Kelsey Barklow
Hurd Realty - Johnson City, TN

Great points and great idea about checking out the lender. You are right, there are so many out there handing out those pre-approvals like, well, candy.

Feb 05, 2009 12:22 PM
Chris Oliver
Century 21, Preferred Properties - Reynolds Plantation, GA

To me the sign of a really pro lender is one who will work with you to get a full commitment letter and not a boilerplate prequal. I usually like to get this in advance of making an offer especially if the offer is low...which they all are nowadays. This goes a long way in getting concessions when the seller knows for certain the buyer can close. Unless something really major happens to change things that is. It is real estate after all.

Feb 05, 2009 01:21 PM
Elizabeth Cooper-Golden
Huntsville Alabama Real Estate, (@ Homes Realty Group) - Huntsville, AL
Huntsville AL MLS

These are all great pointers.  I am asking for closing costs with every contract I write, to be paid by the seller.  The first thing I do is a CMA...that is our first clue as to whether or not it will appraise.  No way am I going to oversell a buyer or increase over list price. Not in our market...cough it up sellers, lol.  (unless the home is far below market value)

Feb 05, 2009 02:08 PM
Roland Carrillo, PhD - Mortgage Consultant
Cary, NC

Great tips Connie, and even as a lender I agree that listing agents should look into the buyers lender.  I have had many listing agents call to ask me about my company, experience and how thorough a pre-approval I have done.  A reputable professional should have no issues with this and understand the reasons why it is asked.  In fact, I LOVE IT when listing agents do this, its the first step to impressing them and building a positive relationship to grow my business after the closing :)

Feb 05, 2009 03:42 PM
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Connie, great post and something that is becoming a fairly large issue with low down payment first time buyers.  Thanks.

Feb 05, 2009 11:22 PM
Tony Anderson
Century 21 Community Realty - Habersham, GA
Realtor - Serving Habersham Banks, White & Hall Co

This year properties not appraising will be an issue that will catch Realtors off gaurd.  Even 1 of your own Listing your trying to sell.

Feb 05, 2009 11:35 PM
Greg Cook - First Time Homebuyers Network

Great Tips, Connie!

As lenders we have been dealing with value issues since "forever". Fortunately (or fortunately depending on how much blame of the current crisis should fall on inflated appraisals) an increasing market usually gave us a solution.

Those days are over!

I tried to do a post on the new HVCC (Home Valuation Code of Conduct) but AR shut it out. Going forward (at least for Fannie Mae and Freddie Mac loans) loan originators won't be able to choose their appraiser (neither can the borrower nor Realtor).

But more relevant to this whole value issue is the MCA (Market Conditions Addendum) now required on conventional appraisals. If you are in a declining market (like us in SoCal) you can expect underwriters to place the most value on the most recent comps.

A scenario passed on by my favorite appraiser was one that will become all to familiar. He did an appraisal and using comps no more than 90 days old (well within guidelines) he was able to bring the appraisal in at sales price. The MCA indicated declining market and when the file reached underwriting 30 days later he was asked to provide two new comps no more than 30 days old.

Long story short, the new comps did not support the value and the underwriter cut the appraisal to be reflective of current market conditions.

Care to guess what happened to that transaction?

This only applies to Fannie Mae and Freddie Mac loans at this point but you can expect it to be a requirement on all appraisals in the not too distant future.


Feb 06, 2009 02:17 AM
DeAndrea "Dee Dee" Jones
Home Buyers Marketing II, Inc. - Manassas Park, VA
The NorthernVARealEstateLady & DMVRealEstateChick

Im holding an offer now until I can get a complete pre approval for the buyer.  This will usually avoid most problems and spell out everything we need for the contract.

Feb 06, 2009 02:33 AM
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

All great points.  Number 2 is the key.  I'm also a mortgage broker so I understand the companies that give preapproval like candy.

Feb 06, 2009 03:41 PM