When the home prices were rapidly rising, most people comfortably made high offers without worrying about the appraised value. Most of the time, the appraisals would meet the target. Now, partly due to falling prices and partly due to the new appraisal system, 20-30% of appraisals are coming in low, leaving buyers to wonder whether they should pay the purchase price or the appraised value.

Should You Buy a Home for More than the Appraised Value?
The simple answer is no. Of course, there are exceptions. If you’re buying a distressed home by a major architect at a bargain and planning to fix it up, you may well want to pay more than appraised value because it will be worth much more once it’s restored (assuming you do it properly). However, odds are good you’re paying all cash in that scenario, and may not even get an appraisal.

99.9% of home buyers aren’t in the situation, which means that 99.9% should not pay more than the appraised value, especially in a declining market.

Why You Shouldn’t Pay More
Paying more than the appraised value essentially means that you’re paying more than the house is worth. You’re losing money right out of the gate. Given that home prices in many areas may still slide downward, why would you willingly lose money on day one?

In addition, lenders will base your loan on the appraised value, not the purchase price. If you opted for 20% down, then the lender will only lend you 80% of the appraised value, which means you’ll have to produce extra cash to make up the gap between value and price. The other option is to find a different type of loan, but that will cost you much more in interest.

What If the Appraisal Is Wrong?
This does happen. If you feel the appraisal is wrong, you can get a second appraisal or appeal the first one, especially if inaccurate comps were used. However, you should carefully research the factors behind the appraisal. If the square footage is wrong, make sure that the actual square footage matches that listed on the property records at the assessor’s office. If it doesn’t, you could be dealing with an unpermitted addition. Although it would appear to increase the home’s value, it could actually cost you a bundle to correct defects in unpermitted construction.

How to Handle a Low Appraisal
In the event that an appraisal comes in low, you can do one of the three things:

  1. Make up the difference in cash.
  2. Ask the seller to renegotiate the sales price.
  3. Cancel the deal.

Personally, I would choose either two or three. With two, I would ask that the purchase price be reduced to the appraisal price. Some sellers will offer to split the difference. I wouldn’t do that, because even if you split it, you’re still overpaying. The seller may insist that they “need X dollars from the sale.” That may be true, but if the home appraised low, they’re not going to get it. They can either accept less or stay in the house.

I know it’s difficult if you really love a house, but you have to be prepared to negotiate hard or walk away if the appraisal comes in low. In this market, it doesn’t make sense to go into a home in a position of weakness.

Comments

92 Responses to “Should You Pay More than the Appraised Value of a Home?”

  1. Carnival of Personal Finance: New Zealand Edition! | Man Vs. Debt on July 13th, 2009 1:31 am

    [...] Aryn from Sound Money Matters presents Should You Pay More than the Appraised Value of a Home?! [...]

  2. yajaira on July 22nd, 2009 1:12 pm

    how about when the property is bank owened ?

  3. Aryn on July 23rd, 2009 9:01 am

    Unless the property is completely trashed, in which case it likely won’t qualify for a loan and an appraisal might not be done, it will still be compared to other properties to determine a fair value so I still wouldn’t be willing to pay more than the appraised value. Where I live, decent REOs are bid up to fair market value anyway.

  4. Des Little on August 26th, 2009 3:29 pm

    I am curious about how much more an appraisal should be versus what i am paying for the home for it to truly be worth the investment. I am paying 161,500 for a 2,067sqft home that “appears” to be in good condition, we will see what the home inspector says though.

  5. Aryn on August 26th, 2009 5:46 pm

    From what my loan officer told me, most mortgages come in at the offer price. Very few come in above it unless you’re really getting a great deal.

    It really depends on your reason for buying a home. If you’re buying it as a investment to bring profit, maybe you want to find something for less than it will appraise for. If you want to find a home to live in for 10 years or so, don’t pay more than the appraisal, but don’t walk away from home you love that’s in good condition because you’re not getting a huge bargain.

  6. Scott on October 20th, 2009 6:14 pm

    What if the house needs a roof within the next few years; do you take the appraisal (that came in low) and discount the roof from the appraised value?

  7. Aryn on October 21st, 2009 11:16 am

    Scott, that’s certainly a negotiation point with the seller. They may not give you the full cost of replacing the roof because you’ll have the current roof for a few more years at least. But you might be able to get some concessions for it.

    However, if the seller is a bank, they probably won’t go lower than the appraised value.

  8. Autumn on October 31st, 2009 10:04 am

    We are renting a house that we would like to buy. The owner owes close to the county appraised value, but his fiancee wants $45,000 more because of what they put in it. If a house is appraised at $305,000 by the tax appraiser, will an appraiser rate it any differently, especially $45,000 higher?

  9. Aryn on November 2nd, 2009 12:37 pm

    Hi Autumn,

    It’s tough to say what an appraiser will value it for. When you buy the house, the appraiser usually sets the value at the purchase price, but then can adjust up or down with time. If it’s been owned a while, the tax value may not be the true value. It’s best to have a professional appraisal done. You should also look at similar houses on similar lot sizes that have sold in your area in the last six months to see what they sold for. If you figure out an average price per square foot and then multiply it by your square footage, you should get a pretty good idea of the value.

    You can use Redfin’s advanced search features to search sold homes by lot size, square footage, and number of beds and baths.

  10. Ved on November 17th, 2009 5:16 pm

    Hi,
    I made an offer for a house for 155К – it is a short sale, and the bank approved it, but then I went to see the appraisal value and found out it was only 118К – I am about to close the sale, but now I am thinking to renegotiate the deal for for 120К. WHat do you think I should do? And yes the house is not in move in condition it was estimated 15000 to complete renovations.

  11. Aryn on November 18th, 2009 11:10 am

    Wed, that sounds like a pretty bad deal, however you might be stuck. If you’re outside the contingency period, you may not be able to back out without losing your deposit at the very least.

    Frankly, I’m surprised you were able to get a mortgage for that much over the appraised value. Even if your renovations increase the value, you may not make enough improvements to bridge the gap from 118K to 170K.

  12. Ved on November 18th, 2009 12:24 pm

    Hi Aryn

    Well the situation is I had AS IS signed by me to close on October 28. But the bank came back almost a month later and proposed closing on november 19. They rushed HUD to me one day before closing just today and they were supposed to do it 5 days before at least. I had not made a deposit surpisingly, and I am a cash buyer, so technically I am not in obligation to buy the house as closing is 3 weeks late. Am I right? I am thinking to back out today… Thanks.

  13. Aryn on November 18th, 2009 12:34 pm

    Hi Ved,

    Since the bank is also in violation, my feeling would be that you could back out. I’m not a lawyer, though, so for peace of mind, call a local real estate attorney to make sure the bank can’t force you to close or sue you for breach. It will cost a few hundred dollars for an hour of their time, but a few hundred is a lot cheaper than $155K!

  14. Ved on November 18th, 2009 2:02 pm

    Thanks again )

  15. Lisa on March 22nd, 2010 8:46 am

    If I feel I was “screwed” by a Countrywide / FHA mortgage what should I do? Who do I contact? A lawyer?

    Long story short … I had to have a FHA Assessment/Inspector that came in and assessed the property. He assessed it at $90k, asking was $87k. However, I did not know the actual assessment on record for the county is $30k. I think it was appraised high to allow the mortgage. This was my first home, and although ignorance is not an excuse … i took everything I was told at face value. Including a home inspection that should not have passed (but that is another story).

    Thank you for your help!!!

  16. Aryn on March 22nd, 2010 10:05 am

    Hi Lisa,

    Property tax assessments vs home loan appraisals can be a little odd. I don’t know which state you’re in, but in California, the assessed value may lag significantly behind appraised or market value because of the way our property tax system works. Also, the land value is separate from the dwelling value in a property tax assessment, but combined in a real estate appraisal.

    However, you could have another appraiser out to reappraise the property and see if they agree. If they don’t, contact a real estate attorney for advice.

    As for the inspection, if your inspector missed items that were obvious or should have been discovered, you can sue them. Again, contact a real estate attorney for advice.

  17. mike on March 25th, 2010 1:39 pm

    We are in this EXACT situation. The funny thing is that the bank appraisal came in right at our own original estimate for the house, but at the time we decided we couldn’t have been right. If this falls through, next time we’re going in with more confidence in our own appraisal.

    If sellers do not want to cooperate, that’s ok, but the bottom line is that in this market an honest appraisal represents a defacto maximum they should expect for their property, and whether they like it or not, if the Jones’s down the block sell their house for cheap, it DOES impact the market.

    Why aren’t sellers having banks do these appraisals up front and setting more reasonable ask prices, thus saving everyone from hours if not days of wasted time??? The whole painful offer-counteroffer process becomes completely moot when the bank rolls in and values the home at less than even the initial offer!

    This market won’t turn around until the economy warms back up, and thus people have the cash and the willingness to cover the appraisal-to-contract gap out of their pocket.

    Wake up, sellers!

  18. Aryn on March 25th, 2010 5:20 pm

    Really, it should be Realtors ordering appraisals before putting a house up for sale. Banks don’t get involved until a mortgage application is submitted, which only happens after an offer is accepted. However, a serious seller should definitely get an appraisal AND an inspection before going to market. Then at least you know what to expect.

  19. tom on March 29th, 2010 2:09 pm

    I am a first time home buyer in Texas. I have been renting for ~ 10+ years.. intially because I just didn’t want to buy and then the prices were escalating too fast for my comfort.

    To be honest, we placed a couple of bids on properties closer to their 2005 Tax appraisal prices. In the absence of a paid for appraisal before the initial offer, I am using the County tax appraisal as the max I will go for. I believe in a falling market, there is no reason I should be paying more than what it is currently appraised for by the county.

    I have the patience to wait it out. The luxury of time is the best luxury to have when I am looking for a good home at a reasonable price.

  20. Aryn on March 29th, 2010 2:58 pm

    In California, it’s not typical practice to order an appraisal before making an offer. The purchase appraisal is ordered by the lender once the offer is accepted and you enter escrow. Instead, look at recent sales (three-six months) for comparable homes within the neighborhood to figure out how much to offer. Unless your county visits every home to reappraise it every year, the tax appraisal is not a true value indicator. There could be interior improvements that affect value, but are not calculated into tax appraisals. In addition, tax appraisals often have errors, such as incorrectly recorded square footage or more or fewer rooms.

  21. Michael on April 23rd, 2010 11:08 am

    I wish the decision to walk away from the deal was easier. We were just informed that the appraisal came in $30k less than our negotiated purchase price (which was already $35k less than asking). I really don’t think the comps used were representative of the house. The comps were all track homes on small lots while the house we are buying is custom on a 1/2 acre. I just don’t think we would have any better luck with a second appraisal. So we either walk away from this deal or we continue knowing we are losing $30k right off the bat.
    My gut tells me to walk, but in the back of my mind I think the appraisal is wrong. I am buying this to live in for the next 10 – 20 years, so maybe the initial pain will be worth it?

  22. Aryn on April 23rd, 2010 1:29 pm

    It is a challenge when the home you’re buying is so different from the area. That’s one thing to consider – will you have difficulty selling the house in 10-20 years because it’s so unique? Are you in an area where unique is an asset or a detriment?

    You can try pulling comps yourself. Use a tool like Redfin or Cyberhomes to search for homes sold in the last six months with a square footage within 300 SF of yours and a similar lot size. Try expanding your search to 1-2 miles from the house you want to be. If you can find more appropriate comps, you can ask your agent to request an appraisal review. As it stands now, the bank will likely not approve the loan (assuming there is one) unless you come up with that extra 30K.

  23. good points on June 6th, 2010 12:12 pm

    i was thinking doing a CFD contract for deed swap house deal. Othr party initially wanted give me 180K for mine and i give him $230. Then i requested we do an appraisal of both places. Mine came back 212 and his was 210K. Now he wants me pay him 220K and give me $205k. His seems better structurally and in better shape i must say. If i sell and do get $212 i would also lose 6% realtor fees.

    Any thoughts on this deal?

  24. Aryn on June 7th, 2010 10:11 am

    I really know nothing about house swaps, but I’m not clear why you would pay him more than his is worth and receive less than yours is worth.

  25. Ken on June 16th, 2010 12:42 pm

    We have looked at lakefront properties in a three-four county area of southern Michigan. Found one we love, agreed to pay $130,000 (down from the asking price, which was $139,900), were approved for a $104,000 mortgage. Then came the appraisal — at $90,000. House in good shape, well cared for, but all the recent sales were foreclosures or short sales. Because of the appraisal, the sellers have dropped the price to $120,000. Should we walk away?

  26. Aryn on June 16th, 2010 4:57 pm

    It depends. Can you find comps for non-foreclosures and non-short sales within a few miles? Do you plan to keep the property for 20 years or more if it takes that long to regain the value? And finally, if the appraisal came in at 90,000, do you have the funds to cover the difference between the appraised value and the purchase price? Most banks will not offer a loan for more than the appraised value.

  27. Krista on July 7th, 2010 6:13 pm

    I have been in my house for 3 yrs. now. Unfortunately when we purchased our home the market was high and now are wondering why we didnt wait. We purchased the home for 270000 and the house was appraised for 272000. Now my property tax is 96000 under what I purchased my home for. Is the property tax assessment and appraised home value supposed to be the same? I’m wondering if we will ever have any equity in our home because of the market we bought it in. I feel ripped off and wonder if there is anything we could do? Oh and to top it off my loan is a CDA loan which is a type of loan in the state of Maryland.

  28. Aryn on July 8th, 2010 11:49 am

    Your property tax assessment and appraised value may vary because they’re calculated differently. The assessor may come inspect once a year to see if the assessment seems accurate, but it can also be algorithmically calculated using local factors. Also, the assessor can only value based on the outside of the house, and usually only what they can see from the street, unless you specifically request a reassessment. An appraiser bases the value on the entire house’s condition, including the inside and yard, and determines the value based on similar recent home sales.

    I wouldn’t necessarily worry whether the assessment is for the same value as the appraisal. In fact, you probably want a lower assessment right now because it will save you money on taxes!

    Unless your loan is about to reset and you can’t afford the new payments, there’s really nothing you can do short of trying to sell your home. You based your purchase price on the factors at the time and chose your loan based on it as well. Unfortunately, markets do rise and fall.

    If you plan to stay in your home a long time, the value will eventually come back. You just have to give it time.

  29. Laura Brubaker on July 8th, 2010 7:55 pm

    Hi there,

    we had two different types of appraisals. One for the house – about $190,000…another for the orchards – about $65,000. However the bank won’t recognize the orchards in the appraisal. What do I do – just give ten years of orchards and hundreds of hours of work away? HELP – quick I have an offer!
    Laura

  30. Aryn on July 9th, 2010 9:39 am

    Hi Laura,

    I have no experience with this situation, but it sounds like the orchards are a business. Maybe the buyer needs a farm loan that would include the value of the land, or should get a business loan in addition to the home loan. You probably need to call a real estate attorney or a farm finance specialist to figure out what’s the best course of action here. I certainly wouldn’t just give away $65,000 of land/potential profit!

  31. Lara on August 4th, 2010 8:58 am

    Hello,

    We are looking to buy and found a home which is owned by the bank. The house has a lot of updates and was personalized by the previous owners to a large extent. The house is priced higher than the given market conditions. We put in an offer a little higher than what we think its worth since there are multiple offers. The bank has counter offered with the condition that we finance with them and that contract will not to be contingent on the appraised price. Which mean, I will have to pay higher than the appraised price if the appraisal is lower (which I am sure it will be). My question is, are banks allowed to do such things? I know I can walk away from the house but I am curious to know if such practises are allowed and legal especially how things are in the housing market.

    I am in the middle of the offer and you insight is greatly appreciated.

    Thank you!

  32. Aryn on August 4th, 2010 10:46 am

    The bank can require that the purchase not be contingent on the appraisal (although then you wouldn’t be able to get the loan conditions you stipulated, so you could get out of it that way.) When we bought our house, the bank added that stipulation. We were fairly confident the house would appraise, but if it hadn’t, we were prepared to say that the price no longer met the terms of our loan and we would walk away.

    In most states, it’s illegal to require you use a specific bank for your mortgage. They can require you to be pre-approved by them to make an offer, but they can’t force you to use them for your mortgage. To me, this sounds like the bank knows its price is too high and is hoping it can push through a mortgage from itself in hopes of getting it to close.

  33. Carolyn Rodgers on August 4th, 2010 8:26 pm

    In general, yes – I am in whole hearted agreement on this subject – absolutely not… paying over the appraised value is crazy. But, I think each case can be different and certainly an appraisal cannot measure specific personal desires when looking at a property.

    My husband and I are VERY picky buyers. We have search high and low for a property that meets our specific wants/needs. We want a beautiful QUIET mountain view lot. We want our home to be 4000+ square feet and have a 4 car garage. Oh and ideally to live with a break between houses so that we only have 1 neighbor on either side of our home. Eliminating the 1/2 the odds for barking dogs from neighbors.

    We found the home we have been searching for in a golf community and when the comps came in our home was discounted $40,000 off the golf course lots in the appraisal. Even though the view of the mountain on this lot is just as nice or nicer than pretty much any golf course lot in the entire community.

    To us, we felt the discount in the appraisal, although technically fair, did not represent the spectacular view of this lot evenly to the golf course lots. And in an appraisal it clearly won’t. There is nothing subjective about the appraisal.

    So… what do you do? Walk or anti-up? We decided to anti-up. After much negotiation we decided to not let this property get away. It is exactly what we want and and after searching many years for this very special property (at least special to us) we weren’t going to let it go over $35,000.

    Crazy? Maybe, but I don’t think we will be sorry – not one little bit :-)

  34. Mike on August 19th, 2010 1:10 pm

    Howdy,

    We are currently looking to sell our home and we know that we will be asking roughly 20% more than the anticipated appraisal.

    With that being said, we have an extremely unique property. We have a very well updated and maintained 2000 sq ft main home and a 640 sq ft completely separate mother-in-law suite. Generally, I understand that mother-in-law suites are discounted based on the price per sq ft of the main dwelling. But to get something similar (if at all) in our area is rare. A buyer would actually have to look in a much more expensive part of town and probably be priced out anyway.

    We are in a good situation where we are just looking to “move up” so the sale of our home is not a must for us. We just feel if the right buyer (with an aging parent, boomerang kids, divorced daughter or son, etc) comes along, they may consider paying quite the premium. Are we out of our minds? The few Realtors I have discussed it with say it never hurts to try. I also understand that the buyer would have to have quite a bit of cash to cover the down payment plus the difference in the appraisal, but again, shouldn’t the market set the price?

    Any input?
    Thanks
    Mike

  35. Aryn on August 19th, 2010 5:17 pm

    The problem is that the market set the price before the housing crash and home prices spiraled upward to unsupportable levels. During that same period, many people spent a lot of money remodeling with the assumption that they’d make it back in sale. Unfortunately, that isn’t necessarily happening. So, you can ask whatever you want, but that doesn’t mean someone will accept your price. A home up the street from me listed for 32% more than the price of my home, and it’s only 400 square feet bigger (15% more based on price per square foot). It didn’t sell because buyers weren’t willing to pay an inflated price, and banks wouldn’t lend for it.

    Also, consider this: if a buyer has enough cash to cover the down payment plus the difference between purchase price and appraisal, they may very well be able to afford a home in a more expensive area. Are you sure there are buyers for your type of property in your area?

    It also doesn’t matter whether you think the market should set the price, because that’s simply not how it works anymore. That’s how it worked two years ago. Banks have clamped down, and no arguing will change that right now. In fact, lending standards have gotten even tighter in the last several months!

  36. qwertypalopalo on September 2nd, 2010 10:59 am

    thanks for the info
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  37. Schedule on October 29th, 2010 6:32 pm

    Maybe you should edit the blog subject title Appraised Value or Market Value to more suited for your subject you write. I enjoyed the blog post all the same.

  38. Lisa on November 9th, 2010 6:10 am

    We are closing on a home next week. The owners originally had the home with a realtor at tax value, $335,000. Then they took it away from the realtor and put it as a FSBO for $280,000 because they were trying to sell it quick so that they could move in with their father to take care of him. The home is immaculate and the minor repairs that the home inspection came up with were fixed.

    The square footage listed on the tax records is 3011 heated square feet. This includes the basement, which is a daylight basement and some of it is above ground because of the sloping lot and has windows in the bedrooms there.

    The appraiser did not count the basement in square footage at all and so listed only the main floor, making the square footage around 1700 sq. feet. The appraisal came in at $292,000. Still over sales price, but I’m just wondering how accurate it is. Should we ask for another appraisal or go to the tax office and have the tax value lowered?

    I don’t know what comparables were used because, even though we paid for the appraisal, the bank said they can’t release it until closing since it’s a VA loan and the VA actually “owns” the appraisal until then. :/

  39. Aryn on November 9th, 2010 11:34 am

    Yes, it appears that the appraiser majorly missed the boat with that one! They missed half the house! Usually if the square footage is listed on the tax records, they should include all of that. If you got to the tax office, they’ll send out an assessor, who may or may not end up lowering the tax value. Assessment and Appraisal are different things.

  40. Phil Van Fossen on November 17th, 2010 3:47 am

    Early last year I was told by Quicken Loans that I had to pay $400.00 for the appraisal, which I charged on my credit card.At first they ask me what I thought the house was worth and since it had been appraised less than 6 months earlier at $66,000.00, and we had done considerable work on it since that time, we weren’t sure, but were told it was okay to estimate, so not being appraisers, we said about $80,000.00 They said it didn’t matter if the appraisal came in low as long as it was still enough to pay the two mortgages we had & wanted to consolidate. The appraisal came in low at $60,000, they said because there were no comparisons to go by. However this was still enough to pay the two mortgages. They said everything was fine, they were just waiting for the payoffs from the two mortgage companies, which they got. Then out of the clear blue they said they wasn’t going to use the appraisal that we paid for, and claim they got another appraisal for $15,000.00 less, thus making it impossible to make the loan. We have since got two appraisals, one at $68,000 from our credit union and another by a real estate appraiser for the same amount. How can they charge us for an appraisal, then not use it keeping our $400.00, and not make the loan because of their supposedly 2nd appraisal(which we never aw a different appraiser-we are home 24/7 because of health problems)? I guess $400.00 times 40,000 people comes to $16million dollars. How can they get away with this kind of unethical practice? We are on social security and cannot afford this ripoff. Is this kind of stuff legal?

  41. Aryn on November 17th, 2010 1:58 pm

    Yes, it is legal, but it’s not very fair. Probably what happened was that the lender’s original appraisal was sent for appraisal review – so a second appraiser reviewed the report and came to a different finding. The second appraiser may have done a drive-by, which is not at all accurate.

    You should be able to file an appeal. Contact your lender to find out how to do that and submit your two independent appraisals as evidence.

  42. Rebecca on January 5th, 2011 2:06 am

    We are closing on a house in 8 days. We have an FHA loan. The asking price was 179,5. We negotiaged to 175. Our home inspector recommened a roof estimate. We had one say it needed replaced in 2-3 years and one say 5-8 years. We felt like this was a big deal so re-negotiated for the seller to replace the roof. They felt it wasn’t their responsibilty since the estimates showed 2-8 years of roof life. We settled for 5k less for price of home and closing costs. (roof estimate for compete repair 11k) Our FHA appraiser is requiring a “roof inspection.” If the roof does need replaced (FHA requires at least 2 years of roof life) the sellers have agreed to replace it, but we would have to move the money around again and then the price of the house would then be greater than the appraised value of the house-the appraised value came in at 175, but the sale price would be more like 179. First of all- from what i’ve gathered from above “lenders will base your loan on the appraised value, not the purchase price.” so with 3.5% down for the fha loan, the loan amount will be less than the apprasied value. will we be approved for this? and second of all…will a new roof increase the appraised value so that the selling price and appraised price would be closer? should we go ahead with this?

  43. Aryn on January 5th, 2011 10:32 am

    It’s possible that a new roof will increase the appraised value if the appraiser is told the roof is new. We did some sewer repairs that raised our appraisal when we refinanced. But, if the value sticks at 175 and your price is 179, then the loan would be for 96.5% of 175 and you’d have to come up with the 3.5% plus the extra $4000 to cover the gap.

  44. Loren on January 8th, 2011 6:16 am

    Purcahsed a home for $285,000 on land contract with obtaining mortgage in two years. Appriasial came back last week $45,000 less.

    I’ve been told that we can come up with the difference, reneogitate if seller is willing, or cancel deal.

    If we cancel and walk away, do we walk away from our down payment given two years ago?

  45. Redksins on January 8th, 2011 5:39 pm

    What if you entered into a Land Contract for a certain amt and the appraisal came back $45 less that what you agreed to purchase. Is the land contract voidable, if you can not renegotiate with sellers?

  46. Aryn on January 10th, 2011 11:25 am

    I don’t know anything about land contracts, or what would happen with a down payment made two years ago. You should check with a real estate attorney familiar with land deals.

  47. tracy on January 29th, 2011 10:51 am

    the appraisal came in for much less than the agreed upon selling price. the buyer agreed to withdraw the small closing costs assistance from the sellers if they agreed to sell for the appraised value. the sellers agreed to drop to the appraised price but wants the buyer to contribute 50% to the realtors’ commission. what do you think?

  48. Aryn on January 31st, 2011 10:46 am

    Well, the commission is coming out of the sales price, so you could say that you’re already paying all of the commission since you’re the one buying the house. True, it comes out of the seller’s “profit,” but most homes are priced with the commission built in.

  49. Kay on April 22nd, 2011 3:40 pm

    Here’s my situation:
    The house was listed for $52,500, we offered $60,000 (i guess you can say that i really wanted the house). this is my 2nd home and will use it as a rental. the bank accepted my offer under the one condition that “if the appraisal comes in lower than $60k, i am still going to pay $60k for it”…i accepted the condition and we are in our 10 day contingency period (day 2 today). i am having a home inspector come check it out tomorrow. i am worried that it is going to appraise less than 60k.

    am i still able to back out (even though i agreed to the appraisal conditions), or renegotiate the price? if i back out, will i get sued?

  50. Aryn on April 25th, 2011 10:46 am

    We had the same contingency on our house. It came in at the exact price. However, our realtor assured us that we would always be able to find something in the inspection that we didn’t like so we could back out if the appraisal came in low. However, you may not be able to renegotiate the price if it comes in low.

  51. Cynthia on May 2nd, 2011 12:15 am

    HI,
    I’m about to purchase a duplex,it was listed for 229,000 it was pending but accepting back up offers, my realtor called and say the deal felt thru and we could make an offer, the price was changed to $248k our realtor said that that was the price for the first offer. so we offered $240k a counter offer came for $243K and we accepted, the duplex is in a fair condition with some upgrades.we are using an FHA loan so the bank I guess choose the appraiser, they send me the appraisal and it was for $240K i called my realtor and she called the mortage broker right after they send me the same appraisal but with the amount changed now to $243k. what does this mean? I don’t understand why it was first $240 our first offer and then $243K are the appraising the property for what we offered or for what is worth, property is in Califronia.

  52. Aryn on May 2nd, 2011 11:46 am

    In some cases, an appraisal is reviewed and the reviewer will adjust the price up or down, but I’m not sure if it usually happens that quickly. I’d read both reports carefully and see if there are any other differences – like different properties used. If there aren’t differences, I would ask the broker what changed. This is your broker, so you should have direct contact. Don’t go through your Realtor.

  53. Barb on July 19th, 2011 11:16 am

    purchasing a property sitting on 7.45acres, house is 1696sf.appraised value 150k Banks will not accept appraisal do to hardly any similar comps, which the appraiser had huge adjustments he had to make. How will I get the banks to accept appraisal? Will lowering the purchase price from 149k to 125 to 130k make the appraisal more accetable?

  54. Aryn on July 20th, 2011 9:49 am

    It’s hard to say what will make the bank accept it. You may have to get a second appraisal from an different company or ask to have the appraisal go through second review. You should ask your lender what they need to approve the sale.

  55. Leon B on September 9th, 2011 7:31 am

    I am a first-time buyer. My wife and I found a house that we both love. We placed an offer on the house ($10K below asking) and the sellers approved the offer. Since it’s a short sale, the offer did make it through the first approval stage at the bank. Today my agent called me to tell me the bank is requesting the contract be re-drawn because the sellers were not married when the house was purchased.

    My question, Would a bank go through that much trouble to have the names correct if they were going to decline the offer?

  56. Aryn on September 12th, 2011 11:21 am

    There’s no telling what a bank would do, but I would take it as a hopeful sign. I would advise you to keep looking, though, because banks have been known to scuttle short sales at the very last second, sometimes over as little as a $1000 payment to a second lienholder.

  57. Sandra on September 18th, 2011 8:01 pm

    I made on offer on a Short Sale and it was accepted after the buyer’s bank appraised the house. My lender just had the property appraised and it appraised for less than my offer so my bank won’t go through with my loan. I am concerned that I am out my deposit because of this. Plus the appraiser for the seller’s bank and my bank were the same so the seller’s Bank (BofA) knew that my offer was above the appraisal value meaning my bank wouldn’t allow the mortgage to go threw. What can I do? Feel like the seller’s bank should have not accepted the offer and put me in this position.

  58. therese on September 19th, 2011 5:14 pm

    What should one do about a house that has a mother in law cottage with it. The lender refuses to lend on a fixed 15 year loan because of the double “house” . It is a question of appearance they say; it looks like 2 houses. though on one tax bill.
    Can you help?
    T

  59. Aryn on September 20th, 2011 10:54 am

    Hmmm, that’s an odd situation. Is the mother-in-law cottage large enough that it wouldn’t just be considered a small guest house on the property? If the county says it’s on one property with one tax bill, and your appraisal and property records include the square footage, then it shouldn’t matter what it looks like. Unless the property includes a right to divide the land into two lots, then it doesn’t matter what the other structure is. Is it too late to find another lender? Are there other homes in the area with similar structures that have sold recently? In Los Angeles, tons of homes have guest houses and never have trouble selling.

  60. D on January 4th, 2012 3:37 pm

    Sellers offered posted home at the tax assessment, which in our area is extremely inflated! The home was only on the market for one month before they dropped it 25K. The home is in dire need of updating as much of the home is original 1966 including a stove I’ve never seen in my lifetime! The is Frank Loyld Wright style (not by the architect, but in styling) on the river with amazing views. The home is centrally located to interstate and tram as well as a good neighborhood (something not so easy in our area). For us this would save extremely on gas as it would put us directly into the city. We very much like this home; however the appraisal came in at 105K less than their original asking price, still 55K more than our offer. They have offered closing costs, 12K along with 15K towards replacement of the bulkhead (a contingency for our loan as the attached decking rests on the bulkhead).

    I’m just concerned we would be paying 55K over the appraisal, then pay additional 15K for other portion of the bulkhead, then pay approximately additional 15K for the upgrades to bring the home to current standards.

    The home is perfect for us, and honestly we were ok with the original offer price; however now that it’s dropped in value by 55K below our offer I’m concerned.

    The home and those surrounding the area are all unique, and very few homes have sold in the last 10 yrs in this area so this will be the first sale in a very long time. I don’t see how the appraisal could be exact, but 55K just seems too much with all the added expenses we’d walk into. We are a handy couple and see the amazing potential in this home which needs a little weekend warrior and in just a few months could be updated by us personally, but I’m still concerned as no our bank will not cover the difference.

    Is paying above appraisal crazy?

  61. Aryn on January 6th, 2012 10:33 am

    In this case, the appraisal is a challenge to get right. I had a friend in a similar situation. He bought a home by a name architect, but it was small. All the comps in the local area were three times larger and not by a name architect. So, he had to settle on a price he was comfortable with, which fortunately was within the appraised price.

    The real question is whether you have the cash to cover the difference between the loan and the purchase price. Can you afford that? Ignore the asking price – most sellers don’t have realistic prices these days. The improvements you make, especially the bulkhead and kitchen upgrade, will improve the appraised value, but may not make up that $55K. If you plan to stay a long time, you’ll make it up eventually, but only you can decide if you can afford to put $85K into the house right away.

  62. D on January 9th, 2012 3:06 pm

    We talked it over once more and decided to stick with the appraisal and offer 30K towards the closing and bulkhead. In the end they asked for a release, and although we are sad to have lost the home in this market we know we need to be ahead going in not behind.

    Thank you though for your comments. Back to the search :)

  63. rebeccat on January 25th, 2012 9:27 pm

    we are outside of the contingency and was told the appraisal amount is less the buyer is asking to renegotiate, i’ve already dropped from $499,000 to $439,000 now iam being asked to drop another $3,000 what should i do?

  64. Aryn on January 26th, 2012 5:46 pm

    Rebecca, even if you are outside the appraisal contingency period, there is probably a loan contingency as well. If the lender will only issue a loan based on a $436,000 purchase price, the buyer may not have the extra $3000 and the deal will fall through unless you drop the price. On the other hand, if the lender will lend based on $439,000 and buyer just wants an extra $3000 for closing costs or repairs, then you can say no. The buyer may or may not walk away at that point.

  65. Mike S on February 28th, 2012 6:56 am

    We have a condo under contract and it’s been recently renovated (water view)etc. There are no recent comps in this community other than a short-sale/foreclosurer, which our realtor and the lender say that they can use for their appraisal. They also say that they can’t go back more than 6 months and cannot go outside the community. Because of the backlog of inventory and foreclosures in the community, the comps are terrible and no one is selling. We recently got a contact, dropped our price 6K and the appraisal still came in 5K light. Any othere ideas? otherwise, we’re just going to rent it out.

  66. Aryn on February 28th, 2012 11:19 am

    That’s the challenge with the new appraisal rules. Did you try asking for an appraisal review? Sometimes a supervising appraiser comes up with a different value. But, otherwise, it seems like everyone in your community will be stuck until other foreclosures and short sales in your community are sold and more regular owners start selling, but the foreclosures and short sales will have driven down the values. It’s a vicious cycle, and unfortunately one we seem to be stuck in because the previous appraisal system was part of the entire breakdown of the real estate system.

  67. carly on April 12th, 2012 12:09 am

    Ok here is my problem. we have been in escrow for almost a month, we were the first ones to make an offer on the house 3 days after it went on the market.. The seller (who is a house flipper) purchased it cash at 118,000. claims to have put in 40,000 in renovations and his asking price was 218,000. well we originally offered 199,000 then agreed upon 206,000 CONTINGENT on appraised value was stated in the contract…. WE LOVE THE HOUSE. its a house that we want to live in forever and start a family. we were approved for the loan squeaky clean and then here comes the stab in the heart. the appraisal came in at 194,000! obviously in OUR favor but not the sellers, and needless to say hes pissed. He attested the appraisal twice both times with a decent amount of explanations why he doesnt agree and proof that the home is worth more, but the appraiser and his boss both came back saying the original appraised value stands. so now we are stuck between a rock and a hard place because the seller is asking us to switch lenders just so we can get another appraisal stating that he is certain the house’s value is more and that the appraiser is wrong. he will not come down in price, we have already saved almost 50 grand for down payment and closing costs and can NOT come out of pocket anymore money to make up the difference. our loan is a 80/20 conventional with a great locked in rate that is about to expire. the lenders have been very helpful and prompt and we dont know what to do. what are the options? can we sue him because the contract he signed was based on appraised value? what are the repercussions of switching lenders when we were supposed to close in 4 days?! help!!!

  68. Aryn on April 12th, 2012 10:25 am

    It may depend on your state, but generally the loan contingency/appraisal contingency simply means that you can get your deposit back and walk away from the deal if it fails to appraise. It probably doesn’t give you the right to sue, but ask your realtor or a local real estate attorney who will know your local laws/options.

    Changing lenders may not do any good anyway. What will the seller do if you do get a new lender and the appraisal is still low? If you did switch lenders, it would delay closing. Given the new appraisal rules and longer underwriting process, it would likely add at least two weeks to the escrow process.

  69. Kari on April 13th, 2012 9:05 pm

    We are currently considering selling our home in California. Our potential agent quoted us a figure that we thought was 10-15k lower than we expected. He said that once an appraisal is done, you cannot have another appraisal for 6 months. Is this true? We are worried the appraisal would come in low, and we wouldn’t be able to get any offers at asking price. No real comps in the area (we have a pool and a double lot). Homes in our neighborhood are all short sale/foreclosure. Homes recently sold less than two miles away on the same side of town sold for 85k more than his estimate (CMA). Thoughts?

  70. Aryn on April 16th, 2012 11:00 am

    That’s weird. I refinanced twice within six months and got new appraisals both times. I read that FHA imposes that limit on buyers going through the FHA system, but you don’t have a buyer so the FHA isn’t involved. As a seller looking to price the home correctly, you can hire an appraiser directly. I have serious concerns about your potential agent’s experience. You may want to interview additional potential agents and ask about getting a second appraisal.

  71. Kari on April 16th, 2012 12:59 pm

    Yeah, we are definitely interviewing other agents. I got the feeling he just wanted to scare us into selling quickly at a low price. Thanks.

  72. TiRon Gibbs on October 13th, 2012 9:15 am

    We are in the final stages of buying our home. We have had a lease purchase on the home for the past two years. Two years ago we set the selling price at $420,000. We are now in the final stages of buying the home. The appraisal came in at $420,000. I feel uncomfortable paying 100% of the appraised value of the home. I can back with an offer at 95% of the appraised value or $395,000. Is it proper for me to renegotiate the sales price at this stage even though the market has gone down? Or should I pay the sales price of $420,000?

  73. Aryn on October 15th, 2012 9:42 am

    Why are you uncomfortable paying the appraised price of the home? It’s not uncommon for an appraisal to come in at or slightly below the offer price. It’s not a situation where you seek a discount because you want to make a profit from the beginning.

  74. Dee on October 26th, 2012 5:59 pm

    Question – We purchased a bank owned property, made a cash off of 50% of what they were asking. They were asking 50K, we offered 25K cash – they negotiated to 35K, 10K cash and carried the mortgage on the 25K. A year later we finally got a copy of their appraisal as we were hoping to use the land as partial collateral on a home purchase and to refinance the land into it. The bank’s appraisal of the land arrived showing that the land was only appraised at 19K! With total value of the entire property less then the 25K they finance. Are we missing something here or just was I just a mislead buyer who dared to think that a bank would not loan money for a purchase total of more then the value of the appraisal?

  75. Aryn on October 31st, 2012 11:21 am

    It’s odd you didn’t receive the appraisal as part of the purchase process. I don’t know anything about land sales, however, so I can’t say whether it’s typical or not to loan more than the value of land.

  76. rosanna on October 18th, 2013 8:45 pm

    So this is my big problem please help!!!!
    I was lookn for a home to buy owner financed! I found one my kids loved! I call n inquire about it I was rentin n this house I found the lady says its rent to own u move in and when we see u pay on time monthly we will start the buying process! So I move in pay the down payment been living here 3 months! The seller calls n says there ready to close! So I am days away from closing call a central air company to inquire about a unit bein installed thet give me a website to check my square ft I gt on the website n see my house is apraised at 22,000!
    Problem is this company is charging. Me 72,000!!! Is it legal for this company to do this? What is ur opinion on my next step!!

  77. Aryn on October 21st, 2013 3:03 pm

    Anyone can charge any amount they want for the house. Appraisals only come into play when a bank is backing the mortgage. However, I would never consider purchasing a home without an appraisal or an inspection, first. I would also use a licensed real estate attorney and title company.

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