Low Appraisal - what are the seller's options?

Question

We are in escrow on an investment property. We offered 3K above appraisal value. However, appraisal just came back 30K below listing price. At this, what are the seller's options? Can they legally back out if they accepted the offering with 3K over appraisal?

Account Closed · Answer

If this was a bank appraisal, the bank may not underwrite it, or may require you to pay some points, or you can back out based on the appraisal contingency your agent hopefully set up for you in the buysell. If it is not a bank appraisal, it seems like you just have a decision to make. Buy it, or negotiate, or walk away.

M.J Ma · Answer

Thanks guys. So the original contract states "If appraisal comes back less than the purchase price of $290,000, Buyers agree to pay $3,000 in cash over the appraised value at the close of escrow, not to exceed $290,000". Since the appraisal is so much lower, the seller is not willing to honor this agreement. Is it contractually binding?

Guy Gimenez · Answer

This is why understanding your contract is so important. The answer will be within the contract itself. Since you're not sure what you signed, you should take the entire document to an attorney who can explain it to you and provide options based on a full set of facts. I know this isn't what you want to hear but before you do something that could have significant consequences, get some legal advice based on your contract as it relates to your state law.

Dennis Pressey Jr · Answer

@M.J Ma seller can do whatever they want, either: lower the price to appraised value or somewhere reasonably close OR simply cancel the agreement and take another offer, maybe a cash offer willing to buy without an appraisal.

Peter M. · Answer

@M.J Ma Its not about them backing out, its about your ability to close. If you can't get the loan and close, they are not required to lower their price unless it was agreed to in the contract. Depends where this is but in Texas there is an addendum for this that boils down to 3 options: buyer covers the difference, seller drops to appraised value, or both negotiate to middle ground. Moot point now but before signing the contract you could have stipulated something like "if appraisal is within 10% of list price buyer will pay overage, anything more seller agrees to come down". Its a hot market now so they will walk and hope the next buyer gets a better appraiser. 30k on 250k house is huge. 30k on 1.5M is a drop in the bucket. How bad do you want the property?

Low Appraisal - what are the seller's options?

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