Help! Appraisal came in too low

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Help! Appraisal came in too low

Rental Property Investor · San Diego, CA · Member since 2021 · 25 posts · 12 votes

We put an offer in at $1.2M and waived an appraisal, but the appraisal came in WAY lower than the agent, lender and myself anticipated (200k less). We are using a 10% down vacation home loan, and can only afford about $1.06M now.

Does anyone have any advice on how we can still make this deal work? Has this ever happened to you and how did you make it work?

Is it possible to seller finance the remaining 200k to make up the difference? Or is that not an option when you are financing the majority of the home with a bank loan?

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John UnderwoodPro Member

Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes

Are you in the inspection window? If so get out of this deal. You don't want to pay more than a house is worth and never waive an inspection contingency unless you are sitting on a pile of cash to make up the difference. There are other places out there so don't overpay on this one.

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Karl DentonPro Member
Rental Property Investor · Mansfield, CT · Member since 2021 · 225 posts · 131 votes
4y
Lots of unknowns here but if there's a lot of updating or renovations that you could do to raise value you could find a hard money lender. They will only require usually about 10% down and will find the project with renovation costs most times and then you can get a appraisal after your renovations and hopefully that would increase your Value. Basically have to see if your ARV would make sense number wise. If it's turn key then you have to use other creative financing ways, lines or credit even you could use.
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
4y
Are you in the inspection window? If so get out of this deal. You don't want to pay more than a house is worth and never waive an inspection contingency unless you are sitting on a pile of cash to make up the difference. There are other places out there so don't overpay on this one.
16 Reply
Jason WrayPro Member
Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
4y
Patrick,
You need to ask your banker or loan officer for appraisal gap insurance. Just like PMI companies have or offer PMI private mortgage insurance they offer appraisal Gap insurance. The banker/loan officer uses the gap insurance to offset any difference in the appraisal by increasing the mortgage rate slightly. There is more than just one options and scenario so talk with them and see if they offer it or know about it in general.
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Mike Smith
Boise, ID · Member since 2018 · 203 posts · 188 votes
4y
I think the idea of having the seller carry a note in second position to your mortgage is reasonable. Also, consider using the low appraisal to re-negotiate the sales price, maybe meet in the middle.
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
4y
Quote from @Mike Smith:

I think the idea of having the seller carry a note in second position to your mortgage is reasonable. Also, consider using the low appraisal to re-negotiate the sales price, maybe meet in the middle
That's a good idea but their is no appraisal contingency so he has no bargaining chip.

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Jon KellyPro Member
Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
4y
@Patrick Bergeron request another appraisal. OR, walk away from the deal and lose your deposit.
Do you think the $1.06M appraisal is reasonable? If so, then walk away. Why would you want this deal that's $200k under water from day 1?
5 Reply
Caroline Gerardo
Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
4y
Are there three comparables as in closed sales with a loan in past three months same square footage, same footprint? If the answer is no you need to cancel and pray you have arbitration in the contract to get your EMD back. Asking for another appraisal is a waste of your money and time on a Jumbo @Jon Kelly Underwriter already saw the low one and the stink won't go away. @Mike Smith no seller carryback will allow the same Jumbo loan with same debt to income ratio. Only solution is to have $200000 more cash down or the seller reduces the price. Seller knows someone else will buy with more cash so that's likely not happening @Karl Denton no he cannot go and do improvements on a Jumbo loan and use a proposed value unless he has a hard money first with a really high rate to the risk (this is JUMBO in California with 10% down) It would take a major square footage addition to get the value up, permits take 18 months for approval in San Diego, contractors 150% booked will take 36 months @Jason Wray no appraisal gap insurance exists with/ is not allowed on Jumbo loans and there is no PMI company for such. Not MGIC, Genworth, National, Arch, Essent ... too large a loan too high risk They do not cover borrowers, they cover the lender. No NonQM lender offers 107% combined loan to value, no Jumbo lender will do it. If his payment is say $8300 a month and there was some magical lender who would allow more than 100% financing on Jumbo the MI companies do not go over a million dollars even if the DTI was 41, FICO 850 and he's Warren Buffet. Makes me worry when people give advice that risks your EMD. CANCEL beg forgiveness fast. If you need strategies to get the EMD back call me. Did the lender get comparables BEFORE you went hard with no contingencies?
6 Reply
Trish Mccoy
Real Estate Agent · Grass Valley, CA · Member since 2017 · 185 posts · 198 votes
4y
The first thing I'd do is go back to the seller and renegotiate. They aren't going to be able to sell it for their price unless they get an all cash offer or the next appraiser who may have a difference of opinion. I'm sure you guys have already thought of that.
1 Reply
Jose Trevino
Real Estate Agent · Denton · Member since 2020 · 17 posts · 4 votes
4y
I’m guessing your out of option period, I would still try to renegotiate to purchase the property at the appraised value. You could also get another lender and another appraisal. I would print out comps that justify the 1.2 mil and leave them for the appraiser on the kitchen counter. There are other options but I would start there.
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Jonathan BombaciBusiness Member
Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes
4y
Hopefully you understood the risk when you waived the appraisal and don’t have too much money in escrow. I know it’s a crazy market and there are lots of advice out there on “how to win in a bidding war” but risk tolerance is very important.

Assuming you’re out of options and your deposit is exposed, then share the appraisal with the seller and say hey this came in WAY lower than any of us expected. We’re going to submit a rebuttal but can you take a look and see if anything is inaccurate? If you can identify an error that will help you rebuttals the appraisal. Get the seller involved in helping you “fight they bank”. It may not work but then when you go back to them in 2 weeks and say we don’t have $200k to bridge the gap, and we’re stuck with this appraisals they’ll know you’re not trying to be sketchy and they’ll be more likely to work with you.
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Emy Bernardo
Investor · San Diego, CA · Member since 2017 · 112 posts · 92 votes
4y
This is why you need a good agent that would have advised you to write specific terms in the offer about how much of the appraisal gap you would cover and you should not have removed the appraisal contingency for exactly this situation. The San Diego market is extremely competitive and this is the status quo right now. Unfortunately, you will need to negotiate or try to make up the gap somehow.
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Twana RasoulBusiness Member
Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
4y
@Patrick Bergeron Hopefully you guys have an out and didn't gamble on the appraisal since you don't have enough funds. Unless there are glaring mistakes in the report such as wrong calculations, square footage, etc...theres nothing you can do. You either make up the difference since thats what you offered when you went in without an appraisal or you back out if you still have your inspection contingency.
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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
4y
I am not posting this to rub salt in the wound as much as educate others: 1) waive of appraisal contingency should have only be done when you have a lot of confidence that the appraisal will come in at least as high as the negotiated price. Without this confidence you are agreeing potentially pay more than property is worth or loose earnest money. 2) you need to appeal the appraisal making you best case for a higher valuation. Appraisal appeals cost you nothing. I have got $80k increase on appraisal appeal, but I have also got $0 adjustment. It comes down to what sort of case you can make. 3) you likely are better off losing earnest money than paying $200k more than property is worth. I will make an exception for an unique property that you really desire, but these should be rare (a few years ago there was a property that I would have out bid anyone and came in $50k over ask. I would have easily paid over $50k over appraisal for this property. Seller agent never came back to us and it sold at our offer. Our agent believed other agent represented the accepted buyer). 4) do not remove contingencies unless you are willing to face the consequences. 5) a good agent may be able to find a way to get you earnest refunded (Megan’s Law or …), but I would consider it unethical. I would choose not to deal with such a buyer or agent. Be careful.
Good luck

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Joe HammelBusiness Member
Real Estate Agent · Metro Detroit, MI · Member since 2018 · 614 posts · 666 votes
4y
@Patrick Bergeron
Can you (agent/lender) send in comps and dispute the appraisal?
Would have to be done tactfully, but you Can also try to switch lenders/appraisers and get another appraisal.
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Saad D.
Rental Property Investor · Atlanta, GA · Member since 2016 · 60 posts · 53 votes
4y
@Joe Hammel I like Joe's suggestion.
1. Which bank are you using? Is it local? Do they know the local market?
2. Which appraisal company did the bank use? Did you read the appraisal report in detail and identify where the gaps are? What aspects of the property fell your in value? Sq ft, # of beds and baths, condition, location, etc? It's very important to ask the appraiser company this and understand it.
3. How many days ago was the appraisal done. Ive been in a situation where the appraisal was already submitted into official record and even if you change banks and get a new appraisal the older appraisal will be considered so timing is critical here.
What can you do now? Find a reputable local lender and or broker who knows this market and get their advice on a. Is it possible to get higher valuation? B. If so what you should do.
Otherwise the rest of the folks have covered the options well.
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Patrick Britton
Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes
4y
"The appraiser came in low." No. You and your mensa-member real estate agent came in HIGH.
The appraiser doesn't work for you. Their client is the lender. They want to know how much the bank will be able to sell the property when you start defaulting on your mortgage payment that you can't afford because your loan officer fudged numbers while fantasizing about the $20,000 commission on a 1 mil loan. Or maybe it's the real estate agent working for his or her 3% on 1.2 million dollars that might be biased? $30k+ in commission there!
No wait, it's the guy who was paid $500 by a third party to provide an unbiased opinion of value, he's wrong. He doesn't know what he's doing.
4 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Jason Wray:

Patrick,
You need to ask your banker or loan officer for appraisal gap insurance. Just like PMI companies have or offer PMI private mortgage insurance they offer appraisal Gap insurance. The banker/loan officer uses the gap insurance to offset any difference in the appraisal by increasing the mortgage rate slightly. There is more than just one options and scenario so talk with them and see if they offer it or know about it in general.

wow never heard of that one before I have heard of gap insurance for title policies .. will have to check into that this could really save a lot of folks.
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Paul Smythe
Investor · Greenville, SC · Member since 2012 · 269 posts · 187 votes
4y
Be thankful the appraisal saved you from making a $200k mistake. I obviously don't know all the details about the property and your situation, but I'd seriously re-evaluate what you're trying to do. Sounds like you're taking on a lot of risk.
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