House not appraising to sale price

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Marmot
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House not appraising to sale price

Post by Marmot »

I was wondering what are options in this scenario? For instance you have a contract for the sale of a 700K house. The mortgage appraisal comes in at 680K, what are options for involved parties? Obviously seller can drop price to 680K, but what else goes on out there in the real estate world? My wife and I were having a discussion and it got me wondering. Thanks.
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HomeStretch
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Re: House not apprising to sale price

Post by HomeStretch »

Another option is for the Buyer to put in more cash.
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Re: House not apprising to sale price

Post by sailaway »

If the buyer has more money, they may be able to put more money down to make up the difference.

If the buyer can't get financing, the seller can put the house back on the market, but the same thing could keep happening until a cash buyer comes along.

I decided it was worth it to drop the price in my case, even though it was a slightly higher percent. For me, the difference was only a couple of months of carrying costs and we were going into the holiday season.
Mudpuppy
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Re: House not apprising to sale price

Post by Mudpuppy »

There are a few possible outcomes: the seller agrees to lower the price to the appraisal, the seller sticks to the price and the buyer brings more cash to the transaction, a mix of these two (the seller drops the price some and the buyer also brings in more cash), or the buyer and seller dissolve the contract and the seller puts it back on the market.

How these negotiations play out depends on a lot of factors, including how invested the buyers are in the home, how many other potential buyers are out there, and so on.

Regardless of if you're the buyer or the seller in this scenario, it pays to look at recent comparable sales to make sure the appraisal will come in for the correct price. Don't just trust the real estate agent to do this for you.
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kenyan
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Re: House not apprising to sale price

Post by kenyan »

Happened to us as buyers. Contract price was $616k, appraisal came in at $550k. Market was rapidly rising at the time with minimal inventory, and comps were lagging. They had a second buyer at $610k, apparently.

As we did have a financing contingency, our options were:
(a) Come up with the extra $66k in cash (wasn't happening)
(b) Get the seller to drop the price to $550k (wasn't happening)
(c) Something in the middle of the above two scenarios
(d) Get a re-appraisal
(e) Void the contract

We ended up doing (d), at the seller's expense - though I believe the seller ended up refusing to pay it after agreeing to do so, and their real estate agent ended up coughing up the fee to seal the deal. The second appraisal came in at $600k. We agreed to $605k from the original $616k. Seller then reneged and demanded an extra $2k. We ended up relenting, and paid the extra $7k out of pocket.
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NightFall
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Re: House not apprising to sale price

Post by NightFall »

This happened to us when we were selling. We had a buyer jump on the house right away. But the appraisal came in 5% under the offer’s value. The buyer then refused to pay more than the house was worth. This was very upsetting to us since it was “worth” 5% more to them just the day prior. We tried another appraisal, but it came back lower than the first. We ended up with both agents reducing their fee slightly and us eating the rest. Since we were already two months into the process waiting for the buyer to get financing, the market had changed in that time period. We were not happy. At the same time, they put the house back on the market for with a 20% increase over what they paid for it just two years later. I guess it was worth more to them. Unfortunately, no one agreed with them. They took it off the market after 6 months and have it as a rental now.
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marti038
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Re: House not apprising to sale price

Post by marti038 »

This happened to us when we were buying our current house. We forced the sellers to lower their price to the appraised amount (about another $7,000 so nothing earth shattering).

My point to them was if I try to turn around and sell the house later I'm going to have the same issues with appraisal and I didn't see any reason for me to assume the risk. We were willing to walk away over it and I'm glad we stood our ground.
Millennial
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Re: House not apprising to sale price

Post by Millennial »

Options are listed above, so I won't relist them, but I'll add that it is common for buyers to note a "minimum appraisal value" that is less than their offer value in some markets.

Buyers do this where markets favor sellers, and where they must compete against cash or cash-like offers. This gives the seller some reassurance that they won't start the process with a buyer just to have them back out when they can't finance. It's basically the buyer promising to add additional money to the down payment if needed.

We sold a 2 family in a hot market in 2018, and the top offer did this - they offered $1.25MM with a mortgage contingency, but noted that they only needed an appraisal at $1.15MM to make the deal go thru. In the end it appraised above $1.25 so it didn't matter.
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Re: House not apprising to sale price

Post by Nowizard »

Sometimes, a second appraisal is in store. A friend sold a home, and the appraiser appraised landscape at an amount exceeding $200K! The buyer's Realtor referred the appraiser for fraudulent appraisal. Though the second appraiser affirmed the first, there are situations where a second appraisal will be different. Simple possibility is that sf is typically listed on tax sites based on original building plans. Builder may have increased it when constructing, or owner may have added with neither being on tax assessor site.

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Humility101
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Re: House not apprising to sale price

Post by Humility101 »

Most of the options are already listed. This has happened to me twice, very frustrating. First time buyers ended up putting more cash on the table because I had multiple offers above “appraisal.”

Second time it appraised 20k under despite the exact same model house in the cookie cutter neighborhood selling above what we were even asking. Asked for a review and the appraisers wouldn’t budge. Ended up selling due to our purchase contract.

Hopefully nobody on here is doing that for a job, but quite frankly I think it is a complete farce. It’s strange to me how houses are appraised, cars sometimes, but not the stock market, and back in 08 those appraisers did a great job justifying pumped up values in the housing market. Rant over.
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Re: House not apprising to sale price

Post by simas »

Marmot wrote: Fri Jun 19, 2020 11:31 pm I was wondering what are options in this scenario? For instance you have a contract for the sale of a 700K house. The mortgage appraisal comes in at 680K, what are options for involved parties? Obviously seller can drop price to 680K, but what else goes on out there in the real estate world? My wife and I were having a discussion and it got me wondering. Thanks.
money would have to come up from somewhere, buyer, seller, or both. the rest is in details.
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Re: House not apprising to sale price

Post by Vanguard Fan 1367 »

I got into a situation where I wanted to help someone buy a house. This house was in an area where if you wanted a fixer upper for around 100k you had better move swiftly. After losing one of these we got an accepted offer on another fixer upper.

When the appraisal came back low the lender said no problem, for an extra fee we can lend the money.

There is no way that appraisal should have been low because you could sell it instantly at the accepted offer’s price. I think the lender just wanted that extra fee.

A year or so later the person who I helped buy the house made about 50k profit on his fixer upper.
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stan1
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Re: House not apprising to sale price

Post by stan1 »

Happened to us a a buyer. We were in a multiple offer situation, liked the house, and wanted to avoid having to move into temporary housing while we waited to find another house we liked. We made an aggressive bid to lock in the sale. Once the appraisal came back we had our realtor tell the seller's realtor that we were dropping our offer by $30K to the appraised price in order to lift the appraisal contingency. Seller accepted as they did not want to put the house back on the market. They claimed they did have a backup offer but we are in the house so either it was lower than the appraised value or they just wanted the deal to close. We would have paid what we had to keep the house but why pay more than needed?

Sellers like to think they are in control of the sales process, but once the seller accepts a buyer's offer with contingencies the buyer actually has a lot of control in lifting contingencies. Most sellers do not want to put the house back on the market when they are just a few days from closing. They are ready to move on.
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Marmot
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Re: House not apprising to sale price

Post by Marmot »

Thanks to everyone for their replies. It is appreciated.
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Osterix
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Re: House not apprising to sale price

Post by Osterix »

This is a very helpful thread.

My spouse and I made our first offer on a home. The seller wasn’t willing to budge on the price so we walked. Afterward seller states they paid for an appraisal, which appraised the house at the asking price. We still didn’t feel it as worth that.

I didn’t realize that you could make an offer with an appraisal contingency. I will certainly consider using that in order to avoid that awkward future scenario.
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TxAg
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Re: House not apprising to sale price

Post by TxAg »

This is so frustrating. Appraisals are just educated guesses. In these cases, the guesses are wrong as the fair market value was just agreed upon by a willing buyer and seller.
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Re: House not apprising to sale price

Post by bsteiner »

Appraising is an art as much as a science. Appraisals can easily vary by 3% (the difference between the contract price and the appraisal in this case).

Also, the appraisers who appraise $700,000 houses, and the amount of work that goes into an appraisal for a $700,000 house, are different from the appraisers and the amount of work that goes into the appraisal of, say, an apartment building, an office building, or a shopping center.
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Re: House not apprising to sale price

Post by 8foot7 »

The realtor we used for our last transaction used to say the only thing more shocking than the number of appraisals that came in to the penny at the contract price was the number that came in 5% less. We sold our last place for a non-round number (I think it was 372,400) and the appraisal from the buyer's lender came in at precisely that number - not even 372,500, or 373, or even 372. Come on.

OP, in the case of a 680k appraisal on a 700k offer, as the seller I'd look for the buyer to put in 7k more into the transaction, I'd come down 7k, and I'd make the realtors cough up 7k out of the commission, and get the deal done.
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Re: House not apprising to sale price

Post by Lee_WSP »

8foot7 wrote: Sat Jun 20, 2020 12:21 pm The realtor we used for our last transaction used to say the only thing more shocking than the number of appraisals that came in to the penny at the contract price was the number that came in 5% less. We sold our last place for a non-round number (I think it was 372,400) and the appraisal from the buyer's lender came in at precisely that number - not even 372,500, or 373, or even 372. Come on.

OP, in the case of a 680k appraisal on a 700k offer, as the seller I'd look for the buyer to put in 7k more into the transaction, I'd come down 7k, and I'd make the realtors cough up 7k out of the commission, and get the deal done.
Lol, everyone involved is incentivized to grease the wheels to allow the deal to go through.
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Re: House not apprising to sale price

Post by illumination »

I'd really suggest staying strong on the price and not letting some cut rate appraisal dictate what is clearly the market value of the home since someone is willing to pay that.

No offense, but there are some real idiots out there appraising homes. I one time had an appraisal done, and I'm not exaggerating when I say the appraisal was off by about 40%. It was absolutely ridiculous, almost just the value of the lot without a home.
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Watty
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Re: House not apprising to sale price

Post by Watty »

One thing that has not been mentioned is that when there is a question about an appraisal you should go over the appraisal with a fine tooth comb checking to make sure that all the details like the square footage, number of bedroom, bathrooms etc are correct.

In addition to occasional mistakes defining how the square footage is calculated can be more complex than you might think especially when dealing with things like finished basements, stairs space, attic bonus rooms, sunrooms, etc.

At least in my area the square footage on the counties property tax statement is notoriously inaccurate since that was done decades ago when the house was build an error then may never have been corrected or the rules for what is included in the square footage may have changed.
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Re: House not apprising to sale price

Post by vested1 »

A lot depends on your realtor's experience and contacts. I've had appraisals done in the past for loans that came in much lower than comps, but when it came to selling our home, I went with the highest rated local realtor who was tops in sales in the area for years, and there was a reason for it. We sold a condo on the first weekend it was listed with her, that went for 20k over what we were hoping for, which surprised me because we were asking more than current comps, but the appraisal justified the price. 6 months later we listed our home with her.

When the appraisal for our home was scheduled, the realtor, who knew all the appraisers, told me that the one assigned was notorious for always underestimating the value of the home. She advised me to reject the appraiser for personal reasons, and that in California it was my right to do so. I don't know if this is possible in other states. She passed on "my" rejection to the lender and another appraiser was assigned. The appraisal came in at the same price as asking, which was surprising since the list price was about 50k over comps.

The house sold immediately with multiple offers, the lowest of which was for full asking price, and the one we accepted was 10k over asking, with one of the offers 20k over asking but which had shakier financing, so we went with the lower offer. The buyer we chose put down 60% at any rate, making the appraisal moot.

That was less than a year ago and Zillow currently shows the house value as 45k under what we sold it for. We were confident that we didn't need to compromise on the price because we had five other offers within the first 5 days, all due to our realtor talking up the listing to other realtors before it went on the market and posting great pictures with a well written description online.

A good realtor is worth their weight in gold. In my opinion the appraisal process is so subjective that manipulation is possible. Unfortunately, the seller is at the mercy of a good appraisal unless they have an agent who knows the ropes, or a buyer who may be irrationally eager to obtain the home.
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Re: House not apprising to sale price

Post by delamer »

TxAg wrote: Sat Jun 20, 2020 12:09 pm This is so frustrating. Appraisals are just educated guesses. In these cases, the guesses are wrong as the fair market value was just agreed upon by a willing buyer and seller.
I agree that there can be issues with the appraisal process, especially in fast-moving markets. But from the mortgage lender’s point-of-view — which is who the appraisal protects — saying the house is worth what was negotiated is too simplistic.

What if the buyers overpaid because their babysitter lives down the street and they want the convenience? Or because they’ve sold their current home and are desperate to avoid a temporary rental? Or they had a bad realtor who’s trying to jack up his commission at their expense?

The mortgage holder wants to get its money out if the buyer defaults. So it needs to know not just what the buyer paid, but what the house would get at resale.

(It can work the other way too. A seller who is about to lose a house to foreclosure or divorcing may sell it at a lower than market price to get rid of the obligation. But that doesn’t put the buyer’s lender in jeopardy.)
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Re: House not apprising to sale price

Post by wfrobinette »

Osterix wrote: Sat Jun 20, 2020 12:00 pm This is a very helpful thread.

My spouse and I made our first offer on a home. The seller wasn’t willing to budge on the price so we walked. Afterward seller states they paid for an appraisal, which appraised the house at the asking price. We still didn’t feel it as worth that.

I didn’t realize that you could make an offer with an appraisal contingency. I will certainly consider using that in order to avoid that awkward future scenario.
You can. I actually asked buyers that were in a bidding war for my home to make their last and final offer regardless of appraisal.

I had it listed for 719k and they bid this up to 850. One at 770 and the other at 850. THe one at 850 said he wouldn't go any more than listing if it didn't appraise. The 770 guy said he didn't care and gave me 770. He was upset when it appraised for 749k.
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Re: House not appraising to sale price

Post by Vanguard Fan 1367 »

wfrobinette wrote: Mon Jun 22, 2020 2:07 pm He was upset when it appraised for 749k.
Did the sale go through without too many problems after the "upset?"

I bought a house where I didn't care about the appraisal (paid cash) because I wanted the house.
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Goal33
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Re: House not appraising to sale price

Post by Goal33 »

Vanguard Fan 1367 wrote: Mon Jun 22, 2020 2:10 pm
wfrobinette wrote: Mon Jun 22, 2020 2:07 pm He was upset when it appraised for 749k.
Did the sale go through without too many problems after the "upset?"

I bought a house where I didn't care about the appraisal (paid cash) because I wanted the house.
Did you get an appraisal even though you were paying cash?
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Re: House not appraising to sale price

Post by wfrobinette »

Vanguard Fan 1367 wrote: Mon Jun 22, 2020 2:10 pm
wfrobinette wrote: Mon Jun 22, 2020 2:07 pm He was upset when it appraised for 749k.
Did the sale go through without too many problems after the "upset?"

I bought a house where I didn't care about the appraisal (paid cash) because I wanted the house.
Yes it did.
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Re: House not appraising to sale price

Post by Vanguard Fan 1367 »

Goal33 wrote: Mon Jun 22, 2020 2:29 pm
Vanguard Fan 1367 wrote: Mon Jun 22, 2020 2:10 pm
wfrobinette wrote: Mon Jun 22, 2020 2:07 pm He was upset when it appraised for 749k.
Did the sale go through without too many problems after the "upset?"

I bought a house where I didn't care about the appraisal (paid cash) because I wanted the house.
Did you get an appraisal even though you were paying cash?
I did my own appraisal in my head and came up with lower than I paid. Thankfully the tax appraiser agreed with me.
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FeesR-BullNotBullish
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Re: House not appraising to sale price

Post by FeesR-BullNotBullish »

Happened to us. The appraisal was about $7k lower than the list price which was $179k if I remember correctly. Our realtor was very experienced and pulled out all the stops to get a favorable appraisal. I believed the appraised value was accurate, so we lowered the price and sold our house.
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Re: House not appraising to sale price

Post by mrspock »

In a hot housing market you pony up the extra money or lose the deal, pretty much what I did on the last deal. In this case isn't wasn't a huge amount of money maybe 20k on a 700k+ house. As a seller, I already had the house appraised, I know I'm asking more than the appraised value, as my goal is to get as much money as possible for the home. I'm trying to get market value, not appraised value, if a buyer can't pony up the money then I move on to another.
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Re: House not appraising to sale price

Post by Vanguard Fan 1367 »

mrspock wrote: Mon Jun 22, 2020 4:43 pm In a hot housing market you pony up the extra money or lose the deal, pretty much what I did on the last deal. In this case isn't wasn't a huge amount of money maybe 20k on a 700k+ house. As a seller, I already had the house appraised, I know I'm asking more than the appraised value, as my goal is to get as much money as possible for the home. I'm trying to get market value, not appraised value, if a buyer can't pony up the money then I move on to another.
Who can blame you for wanting to get market value. I think it is not cool that in hot markets that sometimes the appraisers can't keep up. I wish they would appraise the property for market value.
Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it."
ianferrel
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Re: House not apprising to sale price

Post by ianferrel »

8foot7 wrote: Sat Jun 20, 2020 12:21 pm The realtor we used for our last transaction used to say the only thing more shocking than the number of appraisals that came in to the penny at the contract price was the number that came in 5% less. We sold our last place for a non-round number (I think it was 372,400) and the appraisal from the buyer's lender came in at precisely that number - not even 372,500, or 373, or even 372. Come on.
If anyone wanted an honest appraisal, the appraiser would not know how much the offer was made for.

The result should be a 95% (or whatever confidence interval the mortgagor wants) interval of prices. As long as the offer is above the bottom of the range, good enough.

The way it's done now is just overfitting book-cooking.
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Re: House not apprising to sale price

Post by oldlongbeard »

8foot7 wrote: Sat Jun 20, 2020 12:21 pm The realtor we used for our last transaction used to say the only thing more shocking than the number of appraisals that came in to the penny at the contract price was the number that came in 5% less. We sold our last place for a non-round number (I think it was 372,400) and the appraisal from the buyer's lender came in at precisely that number - not even 372,500, or 373, or even 372. Come on.

OP, in the case of a 680k appraisal on a 700k offer, as the seller I'd look for the buyer to put in 7k more into the transaction, I'd come down 7k, and I'd make the realtors cough up 7k out of the commission, and get the deal done.
+1
delamer
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Re: House not apprising to sale price

Post by delamer »

ianferrel wrote: Mon Jun 22, 2020 5:18 pm
8foot7 wrote: Sat Jun 20, 2020 12:21 pm The realtor we used for our last transaction used to say the only thing more shocking than the number of appraisals that came in to the penny at the contract price was the number that came in 5% less. We sold our last place for a non-round number (I think it was 372,400) and the appraisal from the buyer's lender came in at precisely that number - not even 372,500, or 373, or even 372. Come on.
If anyone wanted an honest appraisal, the appraiser would not know how much the offer was made for.

The result should be a 95% (or whatever confidence interval the mortgagor wants) interval of prices. As long as the offer is above the bottom of the range, good enough.

The way it's done now is just overfitting book-cooking.
That’s the part of the appraisal system that doesn’t make sense. As you said, if the lender was really concerned about an objective resale value then why tell the appraiser the contract offer?
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Re: House not appraising to sale price

Post by rage_phish »

Happened to my buyers when I sold my condo. They just had mom and dad write a check for the difference and made a bigger down payment
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Re: House not apprising to sale price

Post by adamthesmythe »

8foot7 wrote: Sat Jun 20, 2020 12:21 pm The realtor we used for our last transaction used to say the only thing more shocking than the number of appraisals that came in to the penny at the contract price was the number that came in 5% less. We sold our last place for a non-round number (I think it was 372,400) and the appraisal from the buyer's lender came in at precisely that number - not even 372,500, or 373, or even 372. Come on.
Maybe the bank asked the question "can you justify a selling price at least as much as $XX?" Maybe an appraisal exactly equal to the contract price means that the house actually can appraise higher...and this is not communicated because it might screw up the deal.
bberris
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Re: House not apprising to sale price

Post by bberris »

wfrobinette wrote: Mon Jun 22, 2020 2:07 pm
Osterix wrote: Sat Jun 20, 2020 12:00 pm This is a very helpful thread.

My spouse and I made our first offer on a home. The seller wasn’t willing to budge on the price so we walked. Afterward seller states they paid for an appraisal, which appraised the house at the asking price. We still didn’t feel it as worth that.

I didn’t realize that you could make an offer with an appraisal contingency. I will certainly consider using that in order to avoid that awkward future scenario.
You can. I actually asked buyers that were in a bidding war for my home to make their last and final offer regardless of appraisal.

I had it listed for 719k and they bid this up to 850. One at 770 and the other at 850. THe one at 850 said he wouldn't go any more than listing if it didn't appraise. The 770 guy said he didn't care and gave me 770. He was upset when it appraised for 749k.
Even without the appraisal contingency, most buyers will have a financing contingency. So they still need an appraisal number to support the loan.
BillyK
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Re: House not appraising to sale price

Post by BillyK »

ianferrel wrote: If anyone wanted an honest appraisal, the appraiser would not know how much the offer was made for.
The appraiser is appraising for the subject's market value. Part of the definition for market value includes how much a buyer would pay for the subject property. The offer amount is pertinent information that the appraiser needs to know in order to perform an "honest" appraisal. In fact under the Uniform Standards of Professional Appraisal Practice (USPAP) Standards Rule 1-5, (a) the appraiser is required, "analyze all agreements of sale, options, listings of the subject property current as of the effective date of the appraisal."

It is possible that the offer for the home may not be fair market value for a number of reasons such as a rushed buyer from out of town who is unfamiliar with the subject market and is overpaying due to lack of knowledge. That is why appraisers ideally use a number of comparable sales to support their opinion of value. However, if an appraiser is going to deviate from the offer amount, particularly coming in at a lower dollar figure, they better have strong supporting market data that shows the offer amount is unsupportable.
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Re: House not apprising to sale price

Post by MMiroir »

8foot7 wrote: Sat Jun 20, 2020 12:21 pmThe realtor we used for our last transaction used to say the only thing more shocking than the number of appraisals that came in to the penny at the contract price was the number that came in 5% less. We sold our last place for a non-round number (I think it was 372,400) and the appraisal from the buyer's lender came in at precisely that number - not even 372,500, or 373, or even 372. Come on.
It is a business practice on the appraisers part. If they come slightly less than the purchase they know they can potentially blow the deal and future business from that lender. A smart appraiser is not going to blow up a business relationship on a few hundred/thousand dollars difference in value/price, and they will round up to the contract price. After all, the contract price is strong evidence of market value.

On the other hand, if the appraiser really thinks the contract price is above market, or there are conditions in the contract that make the price non-market (cash back to the buyer, delayed closing/occupancy, odd contingencies, etc.) they may want to be 5 percent or more under the contract price to protect themselves legally.
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Re: House not apprising to sale price

Post by 8foot7 »

MMiroir wrote: Tue Jun 23, 2020 9:36 am

It is a business practice on the appraisers part. If they come slightly less than the purchase they know they can potentially blow the deal and future business from that lender. A smart appraiser is not going to blow up a business relationship on a few hundred/thousand dollars difference in value/price, and they will round up to the contract price. After all, the contract price is strong evidence of market value.

Seems like the lender ought to be able to tolerate a variance of a few hundred dollars in an appraisal, especially the larger a deal gets, but I recognize there are probably some mind-numbing regulatory or compliance issues with that.
wfrobinette
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Re: House not apprising to sale price

Post by wfrobinette »

bberris wrote: Tue Jun 23, 2020 8:31 am
wfrobinette wrote: Mon Jun 22, 2020 2:07 pm
Osterix wrote: Sat Jun 20, 2020 12:00 pm This is a very helpful thread.

My spouse and I made our first offer on a home. The seller wasn’t willing to budge on the price so we walked. Afterward seller states they paid for an appraisal, which appraised the house at the asking price. We still didn’t feel it as worth that.

I didn’t realize that you could make an offer with an appraisal contingency. I will certainly consider using that in order to avoid that awkward future scenario.
You can. I actually asked buyers that were in a bidding war for my home to make their last and final offer regardless of appraisal.

I had it listed for 719k and they bid this up to 850. One at 770 and the other at 850. THe one at 850 said he wouldn't go any more than listing if it didn't appraise. The 770 guy said he didn't care and gave me 770. He was upset when it appraised for 749k.
Even without the appraisal contingency, most buyers will have a financing contingency. So they still need an appraisal number to support the loan.
I've never seen a appraisal contingency listed separately in my 8 housing transactions. It is always the been financing contingency that the appraisal affects in my experience.

All offers came in with approved financing with 20% down at their offer price. Meaning they had the cash to cover any shortage on the appraisal.

Savvy buyers get an approval letter for the exact price they offer so the seller can't see how much you can actually get financed for. Helps with negotiations. The offer was written that buyer would kick in the cash if it didn't appraise.
nigel_ht
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Re: House not apprising to sale price

Post by nigel_ht »

Lee_WSP wrote: Sat Jun 20, 2020 12:31 pm
8foot7 wrote: Sat Jun 20, 2020 12:21 pm The realtor we used for our last transaction used to say the only thing more shocking than the number of appraisals that came in to the penny at the contract price was the number that came in 5% less. We sold our last place for a non-round number (I think it was 372,400) and the appraisal from the buyer's lender came in at precisely that number - not even 372,500, or 373, or even 372. Come on.

OP, in the case of a 680k appraisal on a 700k offer, as the seller I'd look for the buyer to put in 7k more into the transaction, I'd come down 7k, and I'd make the realtors cough up 7k out of the commission, and get the deal done.
Lol, everyone involved is incentivized to grease the wheels to allow the deal to go through.
Yah, which is why generally if it doesn't appraise that's worrisome...especially now. I'm looking at a nice house for $428K that the owners paid $555K in 2006. Ouch.

There's a nice 26 acre lot that the owners are about $50K underwater. They also bought in 2006-2007. There are some markets that never recovered their highs.

I guess it's safer in 2020 than 2006 but it's never a sure thing. I try very hard not to worry about FOMO.
ianferrel
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Re: House not appraising to sale price

Post by ianferrel »

BillyK wrote: Tue Jun 23, 2020 9:24 am
ianferrel wrote: If anyone wanted an honest appraisal, the appraiser would not know how much the offer was made for.
The appraiser is appraising for the subject's market value. Part of the definition for market value includes how much a buyer would pay for the subject property. The offer amount is pertinent information that the appraiser needs to know in order to perform an "honest" appraisal. In fact under the Uniform Standards of Professional Appraisal Practice (USPAP) Standards Rule 1-5, (a) the appraiser is required, "analyze all agreements of sale, options, listings of the subject property current as of the effective date of the appraisal."

It is possible that the offer for the home may not be fair market value for a number of reasons such as a rushed buyer from out of town who is unfamiliar with the subject market and is overpaying due to lack of knowledge. That is why appraisers ideally use a number of comparable sales to support their opinion of value. However, if an appraiser is going to deviate from the offer amount, particularly coming in at a lower dollar figure, they better have strong supporting market data that shows the offer amount is unsupportable.
Sorry, but that sounds like nonsense to me, and quoting standards of appraisal that require knowing the offer leaves me with even less respect for the process.

The purpose of an appraisal is to provide an independent analysis of the value of a property to determine if the offer is reasonable. The only thing that giving the appraiser information about the offer does is weaken the independence of that analysis. Either the appraiser can find a reasonable method of determining the value of a property by independent means, in which case they don't need the offer, or they can't, in which case they're not providing a valuable service.
gpburdell
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Re: House not appraising to sale price

Post by gpburdell »

This happened to me two years ago when selling my townhouse. I forget the exact numbers, but something like the buyer's mortgage company appraisal came $10k below the selling price. We met in the middle and I dropped the price for half the difference and the buyers put in the other half.

If I was willing to wait a few months, I probably could could have gotten full price as comps went up. However, I had just bought another house that was twice as expensive and didn't want to keep paying two mortgages and afraid a downturn in the economy could keep me on the hook for years.
BillyK
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Re: House not appraising to sale price

Post by BillyK »

ianferrel wrote:
The purpose of an appraisal is to provide an independent analysis of the value of a property to determine if the offer is reasonable. The only thing that giving the appraiser information about the offer does is weaken the independence of that analysis. Either the appraiser can find a reasonable method of determining the value of a property by independent means, in which case they don't need the offer, or they can't, in which case they're not providing a valuable service.
The purpose of an appraisal on a typical single family home sale is to determine its market value as of a specific date. A basic definition of market value includes "a willing buyer and seller in an arm's length transaction after the property has been properly marketed and both parties are acting prudently, knowledgably without duress or compulsion".

Unless the appraiser has specific knowledge that the subject sale's contract amount doesn't meet the above definition of market value, they would be extremely remiss to ignore it while relying solely upon independent sales market data. Rather than weakening the appraisal, it strengthens it since should be most reflective of the subject property. The independent comparable sales help to provide support for the purchase price. An appraisal is an opinion of value and the more information that the appraiser is able to obtain during the information gathering process, the better the appraisal.

There will be many instance where appraisals will occur when there won't be an arm's length agreement between a buyer and seller, or other viable supporting information. Then in those instances the appraiser will have no other choice but to rely upon solely independent sources.
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Noobvestor
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Re: House not apprising to sale price

Post by Noobvestor »

illumination wrote: Sat Jun 20, 2020 12:49 pm I'd really suggest staying strong on the price and not letting some cut rate appraisal dictate what is clearly the market value of the home since someone is willing to pay that.

No offense, but there are some real idiots out there appraising homes. I one time had an appraisal done, and I'm not exaggerating when I say the appraisal was off by about 40%. It was absolutely ridiculous, almost just the value of the lot without a home.
Seriously - and in this case, the difference is a few percent. Makes zero sense to haggle over spare change in the grand scheme
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Pete3
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Re: House not apprising to sale price

Post by Pete3 »

MMiroir wrote: Tue Jun 23, 2020 9:36 am
8foot7 wrote: Sat Jun 20, 2020 12:21 pmThe realtor we used for our last transaction used to say the only thing more shocking than the number of appraisals that came in to the penny at the contract price was the number that came in 5% less. We sold our last place for a non-round number (I think it was 372,400) and the appraisal from the buyer's lender came in at precisely that number - not even 372,500, or 373, or even 372. Come on.
It is a business practice on the appraisers part. If they come slightly less than the purchase they know they can potentially blow the deal and future business from that lender. A smart appraiser is not going to blow up a business relationship on a few hundred/thousand dollars difference in value/price, and they will round up to the contract price. After all, the contract price is strong evidence of market value.

On the other hand, if the appraiser really thinks the contract price is above market, or there are conditions in the contract that make the price non-market (cash back to the buyer, delayed closing/occupancy, odd contingencies, etc.) they may want to be 5 percent or more under the contract price to protect themselves legally.
Bolding above mine - in the history of residential real-estate appraisals has an appraiser ever gotten in trouble legally for a bad appraisal (putting aside any fraud/collusion type activity)?

I have trouble believing there isn't sufficient disclaimers/legalese that would completely shield them from any legal repercussions of a bad appraisal.
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batpot
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Re: House not apprising to sale price

Post by batpot »

kenyan wrote: Sat Jun 20, 2020 1:02 am Happened to us as buyers. Contract price was $616k, appraisal came in at $550k. Market was rapidly rising at the time with minimal inventory, and comps were lagging. They had a second buyer at $610k, apparently.

As we did have a financing contingency, our options were:
(a) Come up with the extra $66k in cash (wasn't happening)
(b) Get the seller to drop the price to $550k (wasn't happening)
(c) Something in the middle of the above two scenarios
(d) Get a re-appraisal
(e) Void the contract

We ended up doing (d), at the seller's expense - though I believe the seller ended up refusing to pay it after agreeing to do so, and their real estate agent ended up coughing up the fee to seal the deal. The second appraisal came in at $600k. We agreed to $605k from the original $616k. Seller then reneged and demanded an extra $2k. We ended up relenting, and paid the extra $7k out of pocket.
On a multiple-offer house, it's pretty egregious that the original appraiser came in that low.
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Re: House not apprising to sale price

Post by Mudpuppy »

Pete3 wrote: Fri Jul 10, 2020 10:36 am
MMiroir wrote: Tue Jun 23, 2020 9:36 am
8foot7 wrote: Sat Jun 20, 2020 12:21 pmThe realtor we used for our last transaction used to say the only thing more shocking than the number of appraisals that came in to the penny at the contract price was the number that came in 5% less. We sold our last place for a non-round number (I think it was 372,400) and the appraisal from the buyer's lender came in at precisely that number - not even 372,500, or 373, or even 372. Come on.
It is a business practice on the appraisers part. If they come slightly less than the purchase they know they can potentially blow the deal and future business from that lender. A smart appraiser is not going to blow up a business relationship on a few hundred/thousand dollars difference in value/price, and they will round up to the contract price. After all, the contract price is strong evidence of market value.

On the other hand, if the appraiser really thinks the contract price is above market, or there are conditions in the contract that make the price non-market (cash back to the buyer, delayed closing/occupancy, odd contingencies, etc.) they may want to be 5 percent or more under the contract price to protect themselves legally.
Bolding above mine - in the history of residential real-estate appraisals has an appraiser ever gotten in trouble legally for a bad appraisal (putting aside any fraud/collusion type activity)?

I have trouble believing there isn't sufficient disclaimers/legalese that would completely shield them from any legal repercussions of a bad appraisal.
A lot of the current appraisal regulations are in response to what were essentially pyramid schemes with houses during the last housing crisis. In this scheme, the seller and buyer would be in collusion to sell the house at an inflated price. They'd pay off the seller's mortgage and split the profits, hold the new mortgage for a while, then repeat the process with a different set of buyers. At some point, the schemers would stop selling the property and let the mortgage default, leaving that last bank in the chain holding the bag with a mortgage that was well in excess of the actual market value for the property.

The transactions in this scheme would appear to be arms' length transactions to an outside appraiser. The legal trouble for the appraiser would depend on if the appraiser was truly acting independently (and just accidentally got caught up in the scheme) or if the appraiser was also colluding with the buyer and seller as part of the scheme. As I recall, the FBI busted groups with both types of appraisers.

So now appraisers will take the contract price under advisement, but if the contract is greatly in excess of what other market activity bears out, they'll lean towards the market price instead of the contract price, just in case there's another scheme brewing. There's a whole slew of other changes as well, but this is the primary change that relates to this thread.
DurangoWino
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Re: House not appraising to sale price

Post by DurangoWino »

We had been in the process of selling our home in The Woodlands, TX when I first read this thread and hoped it would not happen to us...but it did. The first couple to view our house loved it and made a very strong offer just a few thousand less than asking price. They needed help with their closing costs so we agreed to pay most of their closing price. Net to us was just $10K less than offering price. We agreed and waited for the appraisal, it came in at 10% less than our asking price.

Appraiser said that recent sales did not justify what had been agreed to. The problem is that there were four houses in the neighborhood under pending contacts that were closer to what we were asking. Appraiser would not consider these since they were not official sold. In our area we are seeing fewer buyers due to COVID-19, but the ones looking are very serious and willing to pay nearer asking price for nice, well kept homes. Also we had put quite a bit of money into the house with a new roof, AC, water heater, and tons of painting.

In the end we settled with the buyer somewhat in the middle because they loved the house and were committed to closing. So in the end the appraiser was wrong on our home’s value because we settled about $15K more than she said it was worth. I now put appraisers very low on my totem pole of careers I respect. You are pretty screwed in the process if you get a hard-nosed one in my opinion. They can really throw a monkey wrench into the process.
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