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July 11, 2008
Help - low appraisal
We are selling a co-op in Park Slope and it appraised really low and now our buyers are asking for a 50K reduction in price. We had a bidding war and did not take even the highest bid, I know that our place was already under market based on comparables. I am awaiting a copy of the appraisal report, but what are my options here?
Comments
Low appraisals are a pretty common thing now. If you are sure you underpriced and don't want to take less, you should be able to find new buyers if your price is fair. You could go back to your other buyers and see if they are still interested.
I don't know what you're selling your place for but it might not be worth the $50K to start all over again. If they are asking for $50K, they may very well be willing to meet in the middle somewhere.
Posted by: Mrs. Limestone at July 11, 2008 10:13 AM
Take a deep breath and wait for the appraisal. See if you can figure out what's wrong with it. Take a good look at the comps the appraiser used. Maybe they're all over in Greenwood Heights or in buildings with much higher maintenance or something. Before you respond, you want to have a sense of whether, if you lost this buyer, the next buyer will have the a same appraisal problem.
Also, is there a mortgage contingency in the contract? A condition as to the appraisal value? What % of the price is buyer financing? If you stand your ground on price, will the buyer be unable to close or do they have the cash to make up the difference if the mortgage is affected by the appraisal? The answers to those questions will affect your options and your bargaining strength.
Also check the archives here on this topic, it's come up before and I think the discussions were of a reasonable quality.
Posted by: slopefarm at July 11, 2008 10:19 AM
We do have a mortgage contingency in the contract, no condition as to appraisal value. I know their finances as they already went through the board and they have more than enough money to put more down. I think the appraiser must have comped it strangely, he did not know the area at all. I guess until we see the report we don't really know what went wrong. Is there any way I, as a FSBO, can pull comps?
Posted by: WTbound at July 11, 2008 10:23 AM
If this were a house, I would just say go on Zillow and run the comps function, and then figure out which ones are truly appropriate. Someone with more knowledge will have some ideas for you as to co-ops. If you have any realtor friends, particularly at a big shop, perhaps you can get some comps as a friendly favor.
Posted by: slopefarm at July 11, 2008 10:29 AM
Generally the appraisal only has a REAL effect if it comes in below the amount of the mortgage or the Loan-To-Value ratio that the bank is imposing on the buyers. Is this the case?
If not, its just the buyers arguing for a price cut that has no standing in the face of the contract.
Need to know the mortgage terms to tell you more.
Posted by: daveinbedstuy at July 11, 2008 10:48 AM
This is actually one area where I think that listing with a broker is an advantage over a FSBO. They have methods to get the "right" appraisal.
Talk to the mortgage broker repping the buyer - they might be able to "modify" the appraisal so they don't lose out on a commission.
Posted by: guest at July 11, 2008 11:02 AM
11:02 is an idiot.
First point...the broker has nothing to do with the appraisal..it's ordered by the lender.
Second point...I hope whoever "modifies" the appraisal doesn't bother the St Ann's students while on parole after his stint in the pen
Best strategy OP...consult your lawyer based on how the contract is written.
Posted by: daveinbedstuy at July 11, 2008 11:07 AM
11:02 again...Just wanted to mention for those that may not know this..
the bank/institution that will be issuing the mortgage orders the appraisal - that's why i suggest you speak with the buyer's mortgage broker and tell him you believe the comps are too low and you'll move on to another buyer - that might take care of the problem.
Posted by: guest at July 11, 2008 11:08 AM
11:02 here...
one more piece of advice - don't take any advice from daveinbedstuy.
Posted by: guest at July 11, 2008 11:13 AM
Dave, it's true the bank orders the appraisal, but 11:02 is correct. A _good_ broker will meet the appraiser at the site and provide them with the appropriate comps. Seen it done.
Posted by: denton at July 11, 2008 11:17 AM
Hey 11:02....too bad the OP can't see all the bad advice you've dished out in the past. That will all change come Monday. Why don't you register as " Mortgage Moron"
Posted by: daveinbedstuy at July 11, 2008 11:19 AM
I've signed up on Streeteasy for a monthly fee (I think it's like $10) and there's a button you can press that will compile all the closings in the neighborhood, often with a link to the original listing, if it was available, so you can see if it went for less/more than the asking price.
Also, if you know of similar properties that have recently sold in the area of a similar quality as yours, you can look up those addresses on ACRIS to see what they sold for, which is free.
Good luck.
Posted by: guest at July 11, 2008 11:21 AM
Had a similar problem when I bought my first co-op years ago. Appraisal came in low largely because bank's appraiser worked used comps in areas other than Brooklyn Heights.
Solution we used, admittedly on iffy territory but c'est la vie - private loan commitment to the sellers. We paid the bank the $150k (told you it was a while ago) they would approved. We then paid the seller directly $20k and we negotiated away the $5k difference from our agreed to price of $175k. At the closing the bank's lawyer just left, wink-wink, and we signed the private loan papers.
In your case, you said buyers had more than enough money to put down. Buyers could just, for example, put less down and pay you $50k for. . . . furniture?
Posted by: Johnny at July 11, 2008 11:23 AM
correct denton...it is a good broker (seller's) that does that but that's not what he was really talking about "post" the appraisal; unless he wasn't really making it clear.
In defense of 11:02 I see he did correct the first part of the mistake when he posted again at 11:08
Posted by: daveinbedstuy at July 11, 2008 11:24 AM
11:02 here for the last time...
posters like daveinbedstuy are the main reason this site is beginning to lose interest for me.
i've bought and sold properties in both california and new york and i've made a lot of money in the process. i've also been through a number of refinance transactions, so it doesn't really matter to me if you think i'm "an idiot." i do know what i'm talking about and i believe that my advice is very good advice for this particular FSBO. The seller really doesn't have any other options with this particular buyer if he wants this transaction to close without lowering the sales price.
Mortgage brokers do not like to waste their time working hard on transactions that don't pan out. That's why they often work with banks in a very intimate way, and can often work with someone at the bank to get a "good" appraisal. Again, OP, call the broker and say you'll be moving on to your other buyers, and I'll bet you'll get a new appraiser out at your place within no time.
Good luck to the OP, and fu©k you, Dave.
Posted by: guest at July 11, 2008 11:34 AM
11:02...your original post was the cause of all the confusion. In fact it was bad advice.
Glad for the OP's sake that you're not going to post again.
Go get your hot dog for lunch now.
Posted by: daveinbedstuy at July 11, 2008 11:39 AM
Dave,
I'm not 11:02, and don't wish to engage in the namecalling between you two, but as a homeowner, I've jawboned a lender to have its appraiser reconsider the comps. I have also give an appraiser a list of houses I thought made for good comps. It is not illegal or unethical if the comps are valid and the appraiser verifies them independently and sticks to legitimate principles.
I assume you've done (or are doing) a nice reno over in Bed-Stuy. If you need a HELOC, you wouldn't want an appraisal to be based on comps using lower-priced unrenovated houses or houses on sketchier blocks (not intended as a slight -- I love B-S but not every block is beautiful). You also wouldn't want the appraiser to mistakenly overstate the square footage of the comps, lowering the comparable price/sq.ft. If the appraisal came in low, you would want to have these things checked out.
The ilegality/amorality kicks in when the appraiser bends to pressure and abandons principles to inflate the value (hence your reference to parole), which has certainly happened and has made us all uneasy about borrowers and lenders communicating with appraisers, but that is not really the issue here.
Looking forward to guest-free Monday and I hope everyone takes a chill pill by then.
Posted by: slopefarm at July 11, 2008 11:39 AM
Correct slopefarm.
I think the only issue is whether the buyer is still able to secure his mortgage given the appraisal. If the L-T-V ratio was low enough then the mortgage will go through and the buyer has no grounds to ask for a lower price just because he may have made an offer above appraised value.
Looking forward to Monday...LOL
Posted by: daveinbedstuy at July 11, 2008 11:46 AM
OP here again -
I think we are screwed. The buyers dad owns the bank he is getting a mortgage from. They are playing games and unless we want to walk away and find new buyers, we have to play their game. Anybody interested in a lovely prewar 2+ BR on a name street in PS 321 district with scores of original details and new kitchen and bath and a private roof garden with Manhattan skyline views? Oh, an W/D in the apartment? I just reposted our ad on NYTimes and I guess we hope for new buyers!
Posted by: WTbound at July 11, 2008 11:49 AM
Keep in mind your buyers have thrown a few thousand dollars in legal fees/inspections at this point. Sure they might walk away but they are probably more interested in your place than they let on - particularily if you have agreed on a very fair price already. Try to negotiate with them or at the very least explain why you feel the appraisal is incorrect.
Posted by: Mrs. Limestone at July 11, 2008 12:05 PM
WTbound,
good luck!
I feel bad for your situation.
Posted by: brooklynjennie at July 11, 2008 12:06 PM
Dad owns the bank? Walk - it is a game. They were denied a mortgage (or may be) - so they will have an out under their contract - if they are denied a mortgage due to low appraisal, it meets the mortgage contingency out (you don't need to address the appraisal separately.)
Play chicken - tell them you're sticking to the contact - they can take the mortgage contingency out and walk, or they can pony up the extra bucks (if dad owns the bank, believe me, they've got deep pockets.)
I do think a broker will provide appropriate comps to negotiate with the bank - but let the buyers do that work - they can find the comps and argue with the bank easier than you can - they own the damn bank!
If you had a bidding war, there are other buyers out there (you just picked one whose dad owns the bank - that won't happen again!). There are also a lot of all-cash buyers out there (I had offers from many last year). And if you are afraid that the appraisal problem will happen again, consider using a broker and discussing up front with them the reason why and that you want them to provide appropriate comps. They may get you a higher price - it may not end up costing you much in then end. I wouldn't give up 50K to someone who owns the bank - no way.
Posted by: guest at July 11, 2008 12:31 PM
WTBound --
Daddy banker doesn't change your negotiating position. If you think the price is sound and can get it from someone else, you can tolerate them walking. If it will cost you a bunch to let them go, they've got some leverage.
Check this with your lawyer, but it is hard to see how they would get turned down by daddy's bank. Maybe you can take an aggressive posture about who's default it would be if they walk way. The risk of losing the deposit might be enough to get them to back down.
You are not obligated to negotiate price with them at this point and it is not your default if you do not do so, and the worst that happens is that these people, whom you no longer trust anyway, walk away. I don't see much downside to hanging tough unless you think you won't get near the same or better from another buyer soon.
Posted by: slopefarm at July 11, 2008 12:34 PM
The New York Times online real estate section has a feature that allows you to pull up comps immediately and free - you should try it.
Posted by: guest at July 11, 2008 12:35 PM
what's the listing ID/identifying features of the apt.?
Posted by: guest at July 11, 2008 12:40 PM
OP here: listing ID is NS8071116. Please be kind, I'm having a very rough day!
Posted by: WTbound at July 11, 2008 12:49 PM
Call the next person on the list. I don't know why you didn't go with the highest bidder in the first place. You are far from screwed. There was a bidding war. All those people have not found a place already. Call all the high bidders. Tell them the deal is falling apart because the other people couldn't get a mortgage. Give them a week to make a best and final offer. You are golden.
Posted by: guest at July 11, 2008 12:56 PM
OP: Every time i try to pull comps from the NYtimes it crashes my server! Does this happen to anyone else?
Posted by: WTbound at July 11, 2008 1:01 PM
12:31 here again -
I definitely wouldn't try that thing slopefarm suggests about being agressive with them about who is breaking the contract - slopefarm is confused. (A trait of aggressive attorneys - they think about getting agressive before they even bother to figue out if there is any reason or advantage to doing so.)
Slopefarm's advice on that doesn't make any sense at all - they have the mortgage contingency, so the buyer can legally walk if they want - that's what it is in the contract for. You don't need to do anything but stick to the contract. They pay, or they walk. No one will be accusing you of breaking the contract. You aren't under any obligation to have agreed on a price that a an appraiser will like - that's what the mortgage contingency out is in the contract for! Also, slopefarm is confused about the deposit - they aren't under any risk of not getting their deposit back if they walk due to not getting a mortgage - your lawyer will send it back to them ASAP once they invoke the mortgage contingency and provide a copy of a mortgage denial.
While it may be true that the insiderish nature of the transaction (daddy's bank hires appraiser to appraise low to help out kids?), there is no reason to accuse them of fraud - especially in this environment where banks are skittish about the frauds they participated in in the recent past and may be appraising lower now. People tend to get pissed off when accused of fraud (even if they are guilty of it), and in this case you have no need to start such a confrontational thing. You want to sell your apartment, not get caught up in accusing a bank of being fraudulent. (Even
Posted by: guest at July 11, 2008 1:05 PM
12:56 - it is a coop! - you don't go with the highest bidder - you go with the one (1) most likely to actually get a mortgage and (2) most likely to get your board's approval based on their finances - unless you want to waste months of time (and potentially paying for two homes at once) because you were more greedy than smart in picking your buyer.
Posted by: guest at July 11, 2008 1:07 PM
I see we have a word limit now -
the rest of post at 1:05:
(Even if you did want that, you wouldn't win in this environment.)
They know what they are doing (your buyers) and will either buy at the agreed upon price, or walk. If they continue to close, then be ready for more nasty tricks at closing, though. Which is why I think you are probably better off in the long run if they do walk - with people who are trying to pull what they are, I don't trust them - and I'd hate to be sitting there wondering what they will come up with before or at closing!
Stupid advice is why you are better off talking to YOUR attorney than taking advice here. I assume you have one that practices real estate law, as slopefarm does not.
Posted by: guest at July 11, 2008 1:11 PM
1:05 -- you are probably right. That's why I suggested checking with OP's lawyer. I don't recommend taking such a stance without doing so. I dont' do RE law and haven't seen a contingency clause in a long time, but as I recall, it isn't a license to walk for any reason. They have to fail to get a mortgage (please correct me if I am wrong). I don't think they have the option to choose not to pursue it. Given that this is a coop, they are presumably putting something down.
I may be overdoing it; I just get PO'd about dirty pool. But the "let them walk" consensus on this thread seems sound.
Posted by: slopefarm at July 11, 2008 1:13 PM
Sure they have the option to choose not to pursue it - all they need is a mortgage denial letter. A bank can decline to lend for any number of reasons - could be their income, credit score, other debts, building's poor finances or condition, or the bank just doesn't lend to four-unit (or whatever) coops - any number of things in addition to the appraisal being low. The contract doesn't get specific about certain reasons being acceptable or not. It is, in effect, all all purpose out if just can just get that mortgage denial letter, as I understand it.
Posted by: guest at July 11, 2008 1:20 PM
By not needing to pursue it, I mean they don't have to argue with the bank about a low appraisal if they don't want to - they just need to get denied. They do need to apply for a mortgage and get denied.
Posted by: guest at July 11, 2008 1:30 PM
uhh..where is the nytimes comps section? I get on their real estate site and see an 'average home sales' in the area thing, but not a real comps...
Posted by: guest at July 11, 2008 3:28 PM
You will need a brujo to get you out of this one!
Posted by: Ysabelle at July 11, 2008 4:37 PM
um...which "named" streets in park slope are in the ps. 321 school district?
i was under the impression that the named streets...all of them were NOT in ps. 321...
Posted by: guest at July 12, 2008 7:00 PM
Garfield, Carroll and President on the park side of 6th Ave. are in 321
Posted by: WTbound at July 12, 2008 7:56 PM
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