During this housing crisis, there are so many regulations came out that affected the credits market. Besides tighter lending standard, which includes higher fico scores, full documentations and higher down payment, the appraisals are one of the many reasons why a loan may get denied.
As appraisers were among many to blame for the housing crisis due to its loose valuation, the appraisers are taking extra step to be ultra conservative towards their valuation these days. From my experiences, many appraisals came in at the low end of the comparables which sometimes cause problems for the borrower to get qualified on the purchase.
So what do you do when the appraisal value came in lower than your offer price? You have a few options:
1) Re-negotiation: Ask your agent to prepare a request to reduce the offer price and provide evidence of the appraisal report. The seller may or may not agree to lower the purchase price.
2) If the seller is not willing to accept a lower purchase price, and you absolutely love this property, you can:
– Pay the difference in cash
– Appeal the appraisal to the appraiser by asking your agent to provide other comps and detailed description of these properties which support the value of your interested property.
– When the appraiser is not willing to change his number, you can call another appraiser for a 2nd opinion. Explain to the 2nd appraiser the situation, and ask for a value check. It’s free! Appraisers can always perform a quick value check and let you know if it’s worth it to pay for a 2nd appraisal.
Remember, appraisal is a subjective opinion of value. Every appraiser has a slighly different opinion on the value, and the values generally will fall within 5% range.
Is it worth paying more than 5% of the market value? It depends on how much you LOVE this property. Sometimes it’s wise to just walk away from a property even though you love it.
Most sellers think their property is the best in the neighborhood and therefore should worth more than the comparables. Being unrealistic will only increase the amount of time to sell your property and the longer it sits on the market, the less people will be interested in your property. Market price is determined by the supply and demand, even though your propery may worth x dollar 6 months ago, it may not worth as much in the current market condition. Be realistic and your property will sell much faster with less stress.