Appraisal Shortfall - Part II

Well, we got a copy of the appraisal, the biggest problem seems to be the appraiser doesn't know this area very well, nor is some of the information on the subject home correct! We have calls in to the appraiser to discuss this. The lender is an on-line lender based in California (we're in Maryland), and although the rates were very good, long distance borrowing on real estate can be problematic. The $50,000 shortfall on the appraisal in this case is one of those problems that can arise.

We have information for the appraiser to show where the value of the house should be higher (the current owner paid $820,000 in 2005 and homes in our area have not depreciated to that extent) as well as errors in the appraisal itself. We'll see where that leads. We have spoken to the listing agent and the seller is not going to adjust the price, period.

Where does that leave the buyer? Under the financing contingency of the contract, if the buyer cannot obtain the specific financing, the contract can be voided - this is extremely subjective - the specific financing that the buyer had arranged was for 80% of the purchase price of $795,000 or $636,000 - because the appraisal was for $750,000, the maximum amount of the loan would be $600,000 - the buyer would have to come up with an additional $36,000 in cash. It actually gets more complicated, the original offer on the house was $770,000 and the lender approval is for that sale price. So, is the specific financing for $770,000 and the buyer should make up the difference of $25,000? If this is the case, there is still $11,000 in shortfall for the mortgage, the appraisal did not even reach the $770,000 original offer.

Is the contract voidable if, in fact, the buyer is still qualified to finance the property under a different program or with a different lender? According to a local real estate attorney, the new language of the contract finds the buyer in default if he does not close by the specified date, even if the financing contingency has not been removed, and even if additional cash is needed because of an inadequate appraisal. So, this may turn out to be a test of the new financing provisions of our contracts, I'll keep you informed as we progress!

So, the lesson to be learned thus far (even without the final outcome)..... If you are a buyer, get your best rates - even from on-line lenders, but shop those rates to local lenders, it could save you much heartache down the road. As far as appraisal contingencies go, make sure there is one in the contract! No matter how good deal you may believe you have gotten, a seller should not object to a short appraisal contingency - call your lender before presenting the offer (your agent should do this for you) and find out how much time he/she needs to do an appraisal - that will help you determine the amount of time needed for the contingency - keep it as short as possible, that always makes a deal more attractive to the seller.

To be continued.....

BE INFORMED AND CHECK BACK HERE OFTEN!

Comments and Questions Appreciated!