I am about to close on my first house hack (4-unit), but the appraisal came in at 7% less than my offer. I am financing with an FHA loan, and the lender will not approve a loan above the appraised value. My agent shared the appraisal report with the seller and is trying to renegotiate the price. If the seller refuses to sell it for the appraised price, what are my options?
@Eugene Lubman - You can bring the extra cash to closing to cover it. Ask the seller if they want to finance the purchase for a year or two and then refinance.
Did you review the appraisal? Do you agree with the inputs? Double check the appraisal to ensure they have correct square footages, bedroom counts, bathroom counts, etc. Also, take a look at the comparable buildings they used. Ensure they are true comparable.
You can bring extra cash to close, walk away, or challenge the appraisal. You can ask them to split the difference between contract and appraisal price.
@Eugene Lubman I would start with the appraisal. 7% could either mean very little money or a massive amount of money So what was the exact dollar difference between contract price and appraised value?
Almost regardless of that answer, you could request a reconsideration of value but this requires an in depth look at the existing appraisal report.
Send me a private message if you want some ideas on how to prepare a reconsideration of value. As an appraiser, there are certain keywords and phrases that can either hurt or help your chances significantly. happy to help.
Did the seller not sign the FHA amendatory clause?
@Eugene Lubman I would second what @Anthony McEvoy suggested. Run your own numbers on the appraisal and make sure that it makes sense to you. And if it does look good, then it would be up to your agent to negotiate with the listing agent. My approach would be to point out that if they were to drop out of contract with you that they essentially now know what it will appraise for and would then only be looking for buyers who would be willing to cover that appraisal gap. RE-listing a property is always a pain, so it would depend on if they have any signed backup offers or not.
As a side note when reviewing the appraisal I'd also encourage you, as its a multi family, to ensure they are using the correct appraisal approach. Just using market sales comps and not the income approach can really make a difference.
@Matthew Brill nailed it in the shortest form. When something doesn't appraise, there are only three options if you don't appeal it with the appraisal company or if you do and lose:
1. Buyer pays out the difference in cash
2. Seller comes down to the appraisal price (rare in hot markets like now because they can just get a better offer and maybe someone willing to waive appraisal up to that amount)
3. Buyer and seller split the difference somehow (buyer pays x out of pocket and seller reduces the price x)
This is going to be a more common issue in markets where values are increasing 15-30% year over year. Appraisers who are using "recently sold" comps from 4-6 months ago can be 5-10% behind the current values. Having an appraisal contingency is critical when dealing with FHA, USDA and VA loans.
@Eugene Lubman Keep us updated, I'm interested to see how this one turns out for you. Hoping for the best!