Lately, with the change in the market we’ve been noticing a few appraisals having been coming in slightly below the agreed to purchase price. First…. Breathe… there are options and you are protected.
Our team has encountered this issue before and we will encounter it again. If a buyer’s appraisal comes in low there are many options, but here are a few of the main ones:
Negotiate the Purchase Price with the Seller(s)
- The sellers are not obligated to alter the purchase price, but you are always allowed to request a change to the price
Manage the Gap
- If there is a small gap between the appraisal amount and the agreed to purchase price, you as the buyer may opt to bring the cash to make up that gap to closing
- Rescind Your Offer and Request Your Deposit Money Back
Wait… Is Option 3 REALLY An Option If We Did Not Put A Specific Appraisal Clause Within the Offer?
In every sense of the word…. YES!!!!
We’ve had this argument, on our buyer clients’ behalf with many attorneys lately because a buyer is protected via the Mortgage Contingency which includes the appraisal. When a buyer submits a mortgage application and signs that application there are very specific terms within that application that must be met in order to receive the mortgage.
A Uniform Residential Loan Application is used by all the lenders that our team knows and utilizes. Within this application, which is signed by the buyer there are many terms that are specific to the under agreement property, the buyers purchasing the home and terms of the mortgage. These “details” are what allow a buyer to rescind their offer should an appraisal come in low and a seller opts to not adjust the price.
Many of the lines within these details will change, should the appraisal come in low. As an example, if the purchase price is $400,000 and you are receiving 80% financing ($320,000) you would be paying $80,000 as a down payment. Should an appraisal on this example property come in at $375,000 (and there is not adjustment to price) there would be at least three changes of the detail line items: m. Loan Amount, o. Loan Amount, p. Cash from/to Borrower — As an application, this is deemed to have been satisfactory in your efforts to obtain a mortgage with only ONE application so you can request to have the lender send you a letter of rejection based on your mortgage application.
**Banks will try to be helpful and keep the deal together but you are not obligated to keep the deal together if the terms of the mortgage that you applied for have changed**
*** To best protect yourself, when receiving your preapproval from your lender – ask them specifically about the appraisal. Ask the lender if an appraisal comes in low will you be required to come up with extra funds to close on the property or will their mortgage application safeguard you, as their customer, from having to proceed with the purchase if you should choose that option***