SOLUTION: House didn't appraise

[Michael Ramsay]

So my partner came up with a creative way around an appraisal issue and I'm wondering what you all think!  

- Buyers are prequalified based on debt/income for 300k debt.

- Buyer submits offer to buy house at 250k

- House appraisal comes in at 230k

Now this is where it gets interesting...

- Seller offers to owner finance the deficit in the appraisal of 20k.

- Seller does this by offering terms of a loan and is willing to take second position behind primary loan.  

Anyone done anything like this?  It holds people accountable to these high offers we are experiencing in todays market.  If they are willing to purchase the house for 250k,  this provides everyone a wayto be happy.  

Thoughts?  

[Becca Summers]

@Michael Ramsay

In theory, this would work, I think you two biggest risks are. 

1. This has to be disclosed to the lender which would change their debt to income ratio as they have a second mortgage on the home. So they may no longer qualify. Getting the underwriter to approve is also a risk.

2. Your loan for the 2nd would have to be in the 2nd position so if they buyer closed and never made a payment forclosing would be much harder. 

What is really happening in the market are buyers are offering higher expecting the home not to appraise then expecting the seller to drop the price because as mentioned above buyers don't want to pay above appraisal price. I would never advise a buyer client to do that as you can pull an appraiser who might just hit value. 

I push comparables when I list a home to make my sellers more money but I know I have to sell it to the appraiser too. Really how the value is determined is what you will sell it for as a seller, what a buyer will pay and what a bank will lend they all have to balance.