@frugalQ wrote:
DLG,
in a case where the appraisal is lower than the asking price...if the buyer chose to pay the amount to get down to the appraisal price, would they still have to put additional money down to cover the downpayment? for example:
selling price: 100
appraised price: 90
if i am putting 10% down, would I have to put 10% of 90 on top of the 10 that i'm paying to get home to appraisal price? which mean, i'm paying 10 (to get the sales prices down to appraised price) and an additional 9 (to cover the 10% downpayment).
that's just like giving the seller an additional 10 for no reason at all.
The lender loans on the appraised value or the contract price whichever is lower.
If the appraisal comes in low and you can not get the seller to reduce the price to the appraised value - then you have two choices, negotiate a new contract price or walk away from the deal.
Think of it as a disagreement in valuation. The buyer and seller think it is worth 100 but the bank says its only worth 90 (in your example). Since the bank is the one with the money - they get to use their value if you choose to use their money. eg: The one with the gold, rules.
Just because the appraiser comes in with a lower value - it doesn't necessarily mean that it is worth that value but the rules of the 'game' means that is the value that is used. I have personally seen appraisals where the value is off - either too low or too high. If you get 10 appraisers valuing a given property - you will end up with a range of values, especially in a neighborhood that has low turnover. Keep in mind that appraisers have different abilities too - and different experiences. Some appraisers are truly excellent and professional and do an outstanding job. Others, not so much. Read every word of the appraisal and review the comparable sales. That will tell you from the appraisers POV more about the subject property (the house you are buying). If you see large miscellaneous adjustments, then I would question the ability of the appraiser. Or question the instructions provided to the appraiser by the entity that ordered the appraisal.
That is why the decision to pursue the deal after a low appraisal is very important. If the value isn't there for the buyer and the seller won't negotiate to the appraised value, then the buyer has to decide if it is worth it to pursue. If they don't have the cash, then the option is made for them - they have to cancel. Otherwise it becomes a business decision based on the factors the buyer knows at that point in time. Sometimes it is worth the difference and other times it really isn't.
Best thing to do is to review each and every comp the appraiser used and decide for yourself (both buyer and seller).
