The dreaded “Low Appraisal” is being heard in Real Estate offices all around the South of the River Suburbs. Those two small words have a powerful, negative impact on the sale of your home. Recently, I represented a client in a transaction with a low appraisal. I’m happy to report we solved this crisis and are scheduled to close on their new home soon.
The learning experience is one I’ll like to share. When an appraisal is low, it means the buyer can only obtain a mortgage for the amount of the appraisal, minus their required downpayment.
If a buyer is putting 5 percent down on a $200,000 purchase and the home only appraises for $190,000, the buyer can only get 95 percent of $190,000 in a mortgage. The remaining $10,000 shortage must be paid in cash by the buyer or paid by the seller via a reduced price.
Here are Three Suggestions to Save the Sale of your Home.
1. If the buyer is using a conventional mortgage, the mortgage company can submit an appeal to the original appraiser or order a second opinion appraisal. Many times it will be up to the underwriter of the loan whether or not they accept the second appraisal over the first. Sometimes, a buyer changes mortgage companies entirely and starts the whole appraisal process over thereby eliminating the first appraisal altogether. This is unfortunate for everyone, especially the initial loan officer.
2. If the appraisal was for an FHA or VA loan, there is no starting over. An FHA appraisal sticks with a home for at least 6 months and I believe a VA appraisal does the same. In this case, try an Appeal Process with the original appraiser. Usually the Real Estate Agents will provide alternative comparison properties they would like the appraiser to review. We tried the appeal process initially and the appraised value was not increased. If a buyer can switch from an FHA or VA loan to a conventional loan, their mortgage officer can order a new appraisal which may come in higher.
3. Negotiate a settlement between all parties. This is the tricky one, but it is how most Low Appraisal situations are solved. There are creative ways to reach a settlement, including changing the interest rate. In our case, the seller came down in price a few thousand dollars, the buyers brought in a few thousand in cash and also allowed their interest rate to go up by .25 percent. The increased rate was smartly used by their mortgage officer to enable the closing costs to be rolled into their loan. Interestingly, even though their interest rate increased slightly, the overall purchase price was adjusted down enough so their monthly house payment went down by $30/month.
It’s a fantastic home in Farmington and we are all pleased the initial Low Appraisal will not prevent us from closing. For more information, read the Reasons for a Low Appraisal or email me at Sheryl@Petrashek.com, I am always happy to help.