Since the inception of HVCC in May 2009, I have seen more low appraisals in my escrow transactions than I had seen in the previous seven years of my mortgage career.
A low appraisal doesn't necessarily have to be a deal breaker though. There are a few different options that are available to both buyers and sellers that can keep the transaction moving and progressing forward.
OPTION 1: - When receiving a low appraisal, I will almost always recommend that my borrowers try and re-negotiate the sales price they initially agreed to. This is the preferred option that most buyers want to go simply because these days, no buyer wants to pay more for a home than what it's worth.
While many listing agents may whine and complain (including ones here in AR) about buyers using low appraisals to re-negotiate the contract and/or sales price, the fact is that the re-negotiations between the parties don't have to be adversarial and they certainly don't have to be a deal breaker.
In many of my transactions where my borrowers have received a low appraisal and have chosen to go back to re-negotiate the sales price, quite often, the parties will come to mutually rewarding agreement and the transaction proceeds as planned. Isn't that what we all want?
OPTION 2: This is the one option that is probably most favored by listing agents and that would be for the borrowers to just pay the difference between the sales price and the appraised value. Of course, this is the one option that is the least favored options that borrowers want to exercise.
If the difference is significant, some borrowers may be forced to exercise another option simply because they can not afford to pay the difference. However, I have actually seen some of my borrowers opt for this option after first trying to re-negotiating the sales price.
For some borrowers, this is more preferred option than cancelling the transaction because the difference may be small and they have the means to come up with the difference. The buyers feel that because they really love the property and they plan on being in the property for many, many years, they are not concerned with a slightly lower appraised value.
OPTION 3: This is the option to appeal the appraiser. I strongly caution borrowers who wish to go with this option. This option takes times and sometimes a borrower can incur an additional fee for appealing the appraisal. If a transaction is crunched for time, before engaging in this option, it would be best to see if an extension can be granted. Perhaps if the other parties understand why an extension is necessary, they may be more willing to cooperate, this could avoid the need to re-negotiate the sales price.
However, in order to successfully appeal an appraisal, the buyer and their MLO need to have some really strong and compelling documentation supporting a higher value for the subject property. By working with the Realtors/agents in the transactions to obtain documentation to support a higher value, the appraisal review board can request that the appraiser take into consideration the supporting documentation in order to revise the property value.
While I haven't always been able to support my appeal 100%, I have always been able to support a higher value than the value the HVCC appraiser initially granted.
OPTION 4: If all else fails, there is one last option. If negotiations between the borrowers and the other parties have failed and they were unable to reach a mutually agreed upon price or they buyers are unable to pay the difference between the sales price and the appraised value, then another option would be to cancel the contract.
Once again, while listing agents will whine and complain about buyers using a low appraisal to cancel the contract or as they like to put it "walk away", the fact remains that most buyers have neither the intention nor the means to overpay for home. Why should they?
Buying a home is one of the most important decisions someone can make and today's real estate market can be really scary. The home buying process is not a simple process and it's because it can get really complicated and convoluted, that borrowers today need to be working with professionals who can help them through the process.
A low appraisal doesn't necessarily have to be a deal breaker and there are options to try in order to keep the transaction active and moving towards the closing table. In order to overcome the obstacles of a low appraisal, all the parties in the transaction need to be working together towards a mutually beneficial and satisfactory outcome for all parties. It can be done. I speak from experience when I say that.
What Kind of First Time Buyer Programs are Available in Los Angeles & Ventura Counties? FAQ - #1
What kind of property can I buy? FAQ - #2
What Kind of Paperwork Do You Need to Pre-Approve Me? FAQ - #3
What Kinds of Things Can Go Wrong in the Loan Process? FAQ - #5
What are Impound Accounts & Why Do I Need to Have Them in Order to Close My Loan? FAQ - #6
Can You Help Me Get My Kid Get Out of My House? FAQ - #7
I'm Supposed to be Closing Next Week Can You Help Me? FAQ - #8
If I Buy a Duplex, Can I Apply the Tenants Rent Towards My Mortgage? FAQ #9
What is a HomePath Property and How Can I Buy One? - FAQ #11
Can I Still Get a Loan if I Don’t Have Perfect Credit? – FAQ #12
Are There Still Loan Programs Where I Don't Have to Put Anything Down? - FAQ #13
Photos are courtesy of flickr: koyume animationconcepts appraisersbatonrouge giacomomacias
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Donne Knudsen
Realtor® - CalState Realty Services
DRE#: 01364050 / NMLS#: 249822
805.2069123
Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance
Los Angeles County -- Ventura County
© 2010 - All Rights Reserved
Donne - This is excellent. Yes, I can see how this can be a more frequent issue nowadays. Nice to have the options laid out for you in a straight forward way. Suggested.
Hello Donne --- you have presented the different options very clearly and without the emotion that a low appraisal often brings. During the early days of HVCC, there were some issues with out-of-the-area appraisers or those unfamiliar with neighborhood values but it seems to have corrected itself at least as far as the transactions I've been involved. There are some properties that are difficult to appraise and as professionals it's our role to best point out the features, amenities and the improvements of the subject property vs any true competition. Great post and certainly feature-worthy as Debbie suggested as well.
Gave this post a nudge. I have seen option 1 and option 4 on many occasions, never have seen option 2, and haven't seen any successful option 3s in this area in quite some time. All have their merits and it's really up to the buyer/seller on how this shakes out.
Donne--Thanks for the post. You have clearly outlined the options maybe not the ones everyone wants, but it's how we present the options that decides the outcome of low appraisal.
Yes, it is time for me to click submit, too. Good job!
Donne well said gone are the days of where the lender brow beat the appraiser and the appraiser changed his glasses to Rose Colored ones and it came in at Value
Debbie - I'm glad you like it. I always like to tell my borrowers all of their options regardless of what their Realtors/agents think I should or should not be telling my own borrowers.
Michael - Getting a low appraisal has a tendency to ruffle feathers, especially the listing agents. I have had listing agent yelling and screaming at me and chewing me out for low appraisals. SERIOUSLY!!! Like it's my fault the appraisal came in low.
Anita - I've actually seen all of these options during my 8.5yr mortgage career although option 3 is one I hadn't seen until after May 2009 when HVCC was enacted. As I mentioned, I haven't always been able to get the value I needed but I have always been able to get a higher value than the appraiser initially gave the property. I still consider that a success.
Mary - It's true that how we present the options can make all the difference in the world. I've had horrible experiences regarding this issue and I've had some really great ones too. It can go either way depending on how the parties involved handle the situation.
Endre - While I know that kind of crap went on all the time, I never got involved in that kind of behavior or conduct. Nowadays though, the appraisers are being browbeat by the AMC's.
Thx for stopping by everyone; I really appreciate it. Have a good day everyone. :)
Great explanation of the different options Donne. I have had this happen to one client in this past year. The parties reached agreement by meeting some place in the middle. I do think the appraisal was a bit low but once it is out there it is really difficult to appeal. And once the lender has seen it, I'm not sure how willing they are to look at a revised appraisal anyway.
Hi Donne. You put it so succintly. Thank you for going over this with my son yesterday. I had of course already covered it but hearing it from another person did it for him.
Christine - Satisfactory appraisal appeals aren't totally out of reach but they do require a lot of work as well as time and money. I speak from experience when I say that. Right after HVCC was enacted, I was starting to see some really wacked out appraisals. Some were the sloppiest, most inaccurate and incomplete appraisals I had seen in my entire mortgage career at that point. You bet your @$$ I was going to appeal them in an effort to at least get a fair, accurate and complete appraisal for my borrower.
Anyway, while I may not have been able to get the value that we needed to have a smooth transaction, I was always able to get a higher value than what we initially received. In most cases, the higher value was enough to save the transaction. That's good enough for me.
Maya - First and foremost, I enjoyed speaking with your son; it was my pleasure. Buyers can be like that sometimes (even if we're related to them). So many buyers and sellers and their Realtors/agents seem to think that a low appraisal has to be a deal breaker. As you and I both know, it doesn't have to be like that. Everyone just needs to take a deep breath and work towards an agreement together.
Thx for stopping by ladies; I really appreciate it. Have a good night too. :)
Excellent Donne - Way to lay this out for the buyer. In a multiple counter situation, I had buyer use a preemptive version of #2. They offered to bring in X amount of dollars if the appraisal was less than the purchase price. It turned out to be deciding factor. I've had very little luck with option #3; appraisers seem to hide after submitting their work.
Steve - I'm glad you liked it. I get asked this question a lot and have actually seen all of these options over the years. My fave is #1 (that's the MLO in me) but I have also seen #2 too when the difference wasn't enough that the buyers cared to go back to the sellers and haggle over.
LOL at your #3 experience; I can certainly relate. This is why I caution my borrowers about this option because it does take time to appeal with the AMC, track the appraiser down, get the revisions back to the AMC and then have it reviewed again. The shortest appeal I've ever had was 10 days and the longest was 18 days. This is why I always request an extension first before I even submit the appraisal because if I don't get the extension, I won't even attempt the appeal.
Thx for stopping by Steve; I appreciate it. Have a good night and a wonderful weekend too. :)
Donne This is in great timing. I have been very successful myself on my experiences of late. I hate the HVCC and my last few appraisers have been local, unlike my co-workers, but I have been fortuante. I just heard in the office the other day that many deals have gone away BECAUSE of appraisals coming in low.
My appraisal yesterday I was sweating bullets. I really did not think the appraiser was going to bring it in. He gave me KUDOS because I supported my comps and gave him much detail. Now this is not the norm because few of us get the ear of the appraiser but I had at least one of them. It came in so I was lucky.
I think that the options given are some good things to think about when we are in front of a low appraisal.
What a nicely laid out post! I love the way you made it straight forward and logical. There goes another Donne post into my bookmarked list.....sigh.... ;-)
I've assisted with two appeals, neither was successful. Both were actually bad appraisals from out of area appraisers who had NO BUSINESS accepting work on Lake Sinclair. Once the buyer switched lenders, paid for a new appraisal and no problem. The other time the seller paid for another appraisal and the buyers paid an additional $20,000 down because the local appraiser more than supported the sales price. In case 1 both buyer and seller were clients of Lane Realty, in case 2 they were our buyers and not our listing, but I supported the listing agent. The appraiser was a non local full time dental hygienist moonlighting as a appraiser. WTH?
This week we also had one just a a tad low, but when we called the appraiser it turned out to be a mistake in calculations. He subtracted when he should have added.... checked the wrong box on the program about which had the garage (the subject did the comp did not) and he had the opposite. He was very apologetic about the error.
Have you ever had a successful appeal? Has anyone?
Ken - I truly believe that Realtors providing appraisers with supporting documentation for the list price is absolutely vital and proactive in getting a clean appraisal.
Brenda - I'm glad you liked the post. I really wanted to be able to provide some tips and advice regarding low appraisals based on my own professional experiences with my own borrowers. This issue can be a challenging one but it doesn't have to be a deal breaker.
Tammy - WOW! That was one wacked out appraisal you had from the p/t appraiser. Right after HVCC went into effect, I too got a few of those wacked out appraisals too. I had one appraisal where the out of area appraisal appraised the wrong property but that's a whole other story.
As for whether or not I have had a successful appeal? Yes & no. I've haven't always been able to get the value that I needed but I have always been able to get a higher value than what the appraiser initially provided. Was it enough to save the deal, sometimes it has been and sometimes it hasn't been. The fact that I got a higher value is a success to me.
Thx for stopping by folks; I really appreciate it. Have a good night and a great weekend too. :)
Thanks for another well-written and understandable post. I came over to see if you had posted favorites, so I will be back!
Great Post! Mind if I link to it on my blog? I haven't written a post like this yet, I'd love to post it on my homepage!
Ron - I'm glad you liked my post.
Lindsey - Sorry for the delay in getting back to you. Please feel free to reblog if you like.
Thx for stopping by folks; I really appreciate it. Have a good night and a great week too. :)