Selling a Home?
The Appraisal came in low - can I re-negotiate?
As many of my readers know, I am frequently asked to answer questions on a national advice board for Home Buyers and Home Sellers. I was recently asked to respond to this Buyer's question about appraisals and I thought you might find the answer helpful, too!
"As you've experienced, a low appraisal occurs when Buyer and Seller agree on a price of $200,000, for example. The Buyer's mortgage lender hires an Appraiser to evaluate recent sales of "comparable" homes and issue an opinion on the value of the house. Let's assume the Appraiser said the home is worth only $180,000.
The mortgage lender takes the Appraiser's opinion as their eyes and ears - and expert opinion - for that home and will consequently lend only up to the appraised value. So if you're buying on an FHA loan requiring 3.5% of Buyer money in the transaction, the bank will lend only 96.5% of $180,000 in this example.
There are 4 ways to resolve a low appraisal: for the Buyer to come up with additional funds in cash ($20,000 in this example); for the Seller to come down to the appraised value; or for the Buyer and Seller to negotiate some combination of the two. Or to order a second appraisal from a different Appraiser and hope for a higher number.
In the last case, however, put yourself in the mortgage lender's position: 2 appraisals doesn't give the bank clarity, it now has 2 differing opinions and no way to be sure which is the more accurate number. It tends to be very difficult to change the bank's mind once an appraisal is issued.
One last thought is that this is were a strong Realtor proves their worth - I hope your agent is demonstrating that to you.
Hope this helps and Happy House Hunting!"
5.9.11