January 26th, 2022 12:03 PM by Sam Kader MLO130505
In a hot seller's market such as ours, bidding wars often drive home sale prices higher than appraisals can support. One of the criterions that a lender would evaluate in mortgage approval is Collateral/Appraised value of the subject property. This is when appraisal comes into play. If appraisal report comes in at value or is greater than the purchase price, then you are in the clear. However, if appraisal report is lower than the purchase price, your loan will be denied unless buyers and sellers agree to a mutually beneficial solution that will hold the deal together. Here are some options to consider:
1. Appeal the appraisal.
This option requires a concerted effort from the real estate agents, homeowner, and loan officer to find comparable data to justify a higher valuation. The loan officer submits those new comps to the AMC for consideration. Comparable properties should be both recent (within 6 months and within 1 mile radius of the subject property) and should be similar to subject property using only sold houses. There might be some negotiating back and forth until all parties come to a compromise new valuation. Spoiler alert - unless the appraiser made a blatant mistake, from my experience, this option is an uphill battle.
The seller may agree to reduce the price or split the difference. The seller is under no obligation to do so but they may prefer to do this rather than starting over again with a new buyer who will likely have the same issue. However, in a seller’s market, homebuyer would most likely make up for the appraised value shortfall from their own funds to remain competitive during the bidding process. Please be sure to consult with your loan originator before writing an escalation clause with your offer. This option is generally exercised the most.
3. Walk away.
If you have an appraisal contingency and have not waived it, homebuyer can walk away and get the earnest money deposit back.