Single-family appraised very low: what are the options?
So we just heard from the bank, and the house we expected to close on very shortly appraised at 150k less than the purchase price. From what I understand anecdotally, you are unlikely to get anywhere contesting the appraisal. We are emptying our accounts to get to closing and just don’t have any more money…
So we just heard from the bank, and the house we expected to close on very shortly appraised at 150k less than the purchase price. From what I understand anecdotally, you are unlikely to get anywhere contesting the appraisal. We are emptying our accounts to get to closing and just don’t have any more money to close the entire gap. So…what happens now? Is it either that the seller lowers the price (why would they?) or the deal just dies? Meanwhile, my spouse is now worried that we’re overpaying; we’ve already given our landlord notice; etc. Is this common? Is there something that I can do? Sign me, Freaking out in the Slope
I have to say an appraiser almost lost us our deal–and did lose us our interest rate because of the delay.
Now that appraisers are assigned by an agency/lottery system, you can get totally screwed. We were buying a 1930s house in Kensington, Brooklyn, and our appraiser was from out on Long Island somewhere, and had no clue about the market in our neighborhood. The appraiser insisted on all sorts of things, like a C of O on the house (which doesn’t exist on homes built before 1940), and wanting us to fix small cracks in the back of the garage, and all sorts of other things, which caused the loan underwriter to balk and require things that didn’t even exist and weren’t required by New York City.
It was a mess, and caused serious delays in our closing, and as a result, our interest rate lock expired and our rate went up, which means we will pay $24,000 more over the term of the loan.
Sucks.
Our real estate agent (Gabriele Sewtz at Elliman) had to contest the appraisals both of our purchase and our sale. In the case of the purchase, the appraiser had discounted for a school administration building nearby that he had calculated as an actual school. For our sale, the appraiser, who was from Jersey and had no sense of Brooklyn, simply chose absurd comps. Gabriele was successful in both instances.
(This, by the way, is a good reason to have an outstanding buyer’s agent. I don’t normally have anything nice to say about real estate people, but our deal would not have gotten done without Gabriele.)
It won’t take 6 weeks and why would anyone advise you not to try? It seems like they don’t feel like doing the extra work.
It’s not about faking numbers though. A different appraiser could know the neighborhood better and choose more realistic comps. That’s what happened with us.
I think that it is because Brooklyn neighborhoods can vary so drastically within a few blocks. Our first appraiser was from Astoria and chose ridiculous comps that did not reflect on the value of our place at all. It was frustrating, but we were also advised not to contest the bank because they rarely change their stance and you can lose 6 weeks or more in the process.
I meant to say above, “you can’t fake numbers” sorry bout that 🙂
you can always negotiate a seller’s note for the balance, if you can’t close the gap completely.
We were in this situation and our mortgage broker was able to switch banks and try again. This was the advantage of having a broker rather than going straight to a bank. We didn’t have to start at square one, as our broker already had all our documentation. We went from Wells Fargo (who I’ve heard is notorious for low appraisals these days) to Ridgewood Savings Bank. And we actually ended up with a better rate.
Also, we negotiated for the seller to split the cost of the second appraisal and in hindsight realized we could have gotten him to pay the whole thing. It’s a crappy situation for the seller also, and they should be eager for you to try again.
Good luck!
Sounds familiar. What bank?
If you have a mortgage contingency, you can always try to negotiate and if you have some $$ to bridge the gap that is reasonable. There is nothing to assure that the seller won’t be faced with this with the next seller. Can you show that the comps were reasonable and recent?
I wouldn’t even bother with appealing the appraisal, but try another bank if seller completely refuses to negotiate.
You can do a few things.
1. Fight the appraisal. I’ve done this before and sometimes you win and sometimes you lose. If the value isn’t attainable then it is what it is. You can fake numbers
2. Get a new appraisal
3. Use the lower appraisal as leverage if the seller is motivated and get a lower sales price. I’ve gotten some clients over 50k off their sales price in the past.
4. Have the bank deny the file for collateral value and get your down payment back.
That’s what I got.
-Adam Dahill
WCS LENDING
adahill@wcslending.com