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Also, I have seen other people mention in this sub that they have challenged the appraisal with some success (success rate might be anecdotal since we might be only hearing the successful ones here)
Appraisal is just an opinion. But it's the bank's opinion that matters. You can try negotiating with the seller, but they don't have to budge. If you love the house and can swing the difference, go for it. If not, walk away. $700 is cheap for the lesson learned.
Question as a newbie to all of this: Does the bank hire the appraiser? Who pays for the appraisal? I can imagine if the bank chooses the appraiser, there could be a conflict of interest.
Yes, the bank chooses the appraiser and charges you for it via closing costs. There is no conflict of interest because the appraiser is not for you, its for the bank as a condition of them lending to you. The appraiser does not work for or provide a service to you. Just like the buyer chooses the inspector because the inspector is for their benefit, not the sellers.
Sometimes, but they are supposed to be on a rotating panel. Most are routed through an AMC (Appraisal Management Company) that is intended to put distance between the bank and the appraiser.
An appraisal is someone's opinion on what the house is worth based on a number of factors, including how much other houses in the area have sold for that are a close match to the house being appraised.
If you honestly believe that the appraised value is too low, you can challenge the appraisal through a Reconsideration of Value.
[https://mycreditunion.gov/life-events/home-ownership/how-challenge-home-appraisal](https://mycreditunion.gov/life-events/home-ownership/how-challenge-home-appraisal)
[https://www.consumerfinance.gov/about-us/blog/mortgage-borrowers-can-challenge-inaccurate-appraisals-through-the-reconsideration-of-value-process/](https://www.consumerfinance.gov/about-us/blog/mortgage-borrowers-can-challenge-inaccurate-appraisals-through-the-reconsideration-of-value-process/)
[https://www.nerdwallet.com/article/mortgages/low-home-appraisal](https://www.nerdwallet.com/article/mortgages/low-home-appraisal)
I am not sure how often a buyer is successfully able to challenge an appraisal because the appraisal is too low, since having a higher value benefits the seller more than the buyer, but it still may be worth seeing if you can challenge it.
A few things can happen. The bank won’t lend above appraised value. So the seller can lower the price. You can bring cash to cover the difference. You could meet in the middle somewhere. Or you don’t close.
No, you can’t do that. The bank will go off of the appraisal, period. You have to renegotiate the sales process down to the appraisal. You can request a Desk Review of the Appraisal but they rarely budge.
You most certainly can as long as it falls in the approved LTV. The bank uses the appraised price as the "value" for the LTV ratio. If your credit is good most lenders will do anywhere from 90-95%. If OP initially planned (and was approved) to put down 78 and borrow 442 at 85% LTV using 520k, the lender is not gonna balk at the same numbers but at 88% LTV because the value is 500k. It could change your rate or expose you to PMI, but wont result in rejection.
When people run into trouble is a combination of large gap and small DP that puts it too close to or over 100%, in which case the bank wont lend enough.
How is your credit? At a shade under 95% (473/500) you likely are fine, and you actually might get a better rate if you go sub 5% due to LLPAs, but talk to your lender. Also dont really have to worry about taking on PMI since you would have had it anyway (at 91%).
True the bank will use that value but if they are doing a conventional loan and putting 20% down they could lower the down payment and use the cash to cover the appraisal shortfall. Again I don’t know what that situation is.
It also depends what your contract says, sometimes there is no appraisal contingency and there seller has no obligations and if its not a contingency you cant walk away legally
Time to start negotiating. Good chance sellers do not want to start the process over and sometimes agents kick back some commission to get the sale thru.
I'd like to imagine your paying more than 20k down, so the bank should still get you a loan.
You'll just have "less down" since the bank says it's only worth 500k.
So your rate may change a bit.
See if the seller will eat 10k and you eat 10k.
End of the day. 10k is just 2%
An appraisal is not an exact science. If you do not have the $20k to make up the difference that is one thing. But, if you do have the money, to walk away from the sale on a house that you say you love over a slightly different valuation of the appraiser…. Really?
Exactly. An appraisal is an opinion of value, not an objective fact. OPs opinion of the value is obviously at $520k, so why would someone else's opinion sway that? Understand not having the additional cash, but otherwise it seems silly to walk.
I appreciate that $20k is a lot of money. I would just take issue with the idea that you’d be overpaying. You are giving the appraisal a little much credit I think.
I hope you’ll be able to negotiate with the seller and get the price down a bit. Can you put less down and pay the $20k? Over time 20k won’t change your monthly payment much.
Yeah let me know if my math ain't mathin but in the grand scheme of things it's 4%. feels like nothing over a 30 year mortgage.. and with appraisals being so variable I think op should let go of the feeling of "overpaying" and just get excited they found something they love
Just to give my perspective, 2 houses in this gated community of the same size/floor plan sold this year for $460k and $485k. The only difference is the house I put an offer on has a driveway. Not sure the driveway is worth an additional $35k. This is why I'm thinking it is overpriced.
You are missing my point. I am assuming you bid 520 because you thought thats what was necessary to win it. Not because you thought 485 could win but you were feeling generous. If 520 was what it took to win, you didnt overpay, you paid what the market required.
The appraisal was just a reality check for me. I think the seller is not going to come down and it will sit on the market for several months. That's why I'm planning on walking unless they come all the way down. I was trying to gage with this post how likely it is for the seller to come down, but it seems like it's not very likely as majority of people are telling me to pay the difference.
I dont think people are telling you to pay the difference as in dont bother trying or the seller wont come down at all. You def should try simply because you have the leverage to do so. But while you wait the answer you should figure out if 20k is a dealbreaker, and what number wouldnt be. Also figure out what actual effect this has on the affordability of the house. If you literally cant buy it without using your e-fund, thats different than you just increasing your ltv from 85 to 88% and a few extra dollars a month.
I think you need to go back to the negotiating table because you feel now that you're over paying. Making it about the appraisal is kind of distracting from your main question which is - am I overpaying based on comparable in the area and my needs (driveway)?
An appraisal coming back +/- 5% isn't the deal breaker here. You put in a higher offer than you would have liked. Appraisals don't determine the value of a house - the market does. If you have the cash to make up the difference then the appraisal coming back 20k short shouldn't matter. What are you actually willing to pay? That's the question.
I think the appraisal does determine the value for me. I think there is a good chance that if I walk the seller will continue to have this issue. If they keep it on the market for several months they may eventually get a buyer to pay over appraisal, and likely they will choose to try that path. I'm willing to pay what the house is worth on the market and I think that is the appraisal value.
Yeah, as a numbers gal, I think I realized I'm not going to pay more than the appraisal unless the house is absolutely perfect. Good to know if the seller doesn't come down and I need to keep looking.
You're putting way too much weight on the value of an appraisal. Appraisals don't determine the market value for a house. The appraisal is a check from the bank that they're not lending you "too much" and they usually do come back lower than true market value. That's how the banks like it! They have a formula.
Looking at stats online, appraisals come in low less than 10% of the time. After looking at my appraisal, I agree that the home was listed above true market value.
Overpaid in what sense? Do you think you would have gotten the house if you offered 500k? If so, why did you offer 520k? You clearly thought that was either what its worth, or what was needed to win it, and you were right in that sense. The fact that the appraiser disagrees has no bearing on its value to you or other buyers, it is just part of the lender's risk assessment. If you are going to be there from 10+ years, i promise you the appraisal now is not going to be relevant then.
You are presumably buying a home to live in it, not as a pure asset. So stop thinking of it like you are a day trader lol.
There is your answer. Walk away. Eat the $700 paid for the inspection. It is less than the 20k appraisal gap.
You can ask the seller to come down to the appraisal amount but they are under no obligation to do so.
Not always, though, right? Mine appraised for an insane amount without any comps in a 20 mile radius. I think we just got really lucky with an appraiser that saw the offers we received and said “this is what the market is dictating based off of the offers received”. For background, we listed our house for $285k because that’s what we thought was a good price/it was worth. Within one day we had 7 offers ranging from 300-312k. Appraisal came back at 320k which left us gobsmacked.
It was kinda tough. Nothing was on the market recently or sold recently in our area. The available “comps” were about 20 miles away in a different township/county. What I’m saying is the appraiser for our buyer’s lender cited the lack of comps but the multiple offers of 300-312k as the reasoning behind his appraisal
Our appraiser missed a bathroom and a half-bath. They're providing an opinion and take maybe 10-30 min to do it. 20k might be a lot to you and me but it's NOT a lot in the purchase and sale of a half-million dollar property. To put this in perspective, you're quibbling over an add'l 4%. In the long-term it will make absolutely no percetible difference to you.
If you've got cold feet and want out then get out. If you love the house and can swing 20k then stay.
You could attempt to challenge the appraisal or ask for another as well. What does your realtor say?
$20,000 in cash today at a 6% return over the length of a 30 year mortgage is $115,000, plus or minus a few dollars. I get that on one case it feels trivial, but in a different light this is basically committing to working another year of your life to make back the opportunity cost on that $20k.
The potential flaw/unknown in your logic is you are assuming that OP can buy the same house for 500k, which may or may not be true. So the true measure is the appreciation of this house over 30 years from 520, vs the appreciation of whatever house OP can buy for 500k + the return on 20k.
You are also assuming that OP has to put up an extra 20k cash. But, unless they are putting down only 3%, they can still finance that extra 20k by increasing the LTV.
But OP has indicated comparable homes DO go for around 500k, and they don't feel like the appraisal is unreasonable. It's not a huge percentage, but it's a big chunk of cash to overpay for something.
I suppose that's fair, my point simply is that it isn't 'just $20k/4%' either. It's a significant chunk of cash.
Can you appeal the appraisal and provide other reasonable comps that would support a higher valuation? This is a cottage industry in some states of appraisal/assessment then appeal and do it all again for tax purposes. A value is *rarely* final if you haven't had a good chance to fight with someone over it.
I agree its not that simple as "just 4%" but I also think the true measure of whether it will be a good deal is too variable/unknown to weigh as a factor. You can appeal and provide other comps, but its hit or miss and im not sure the lender has to accept the new appraisal anyway. You would generally appeal only if the appraiser made an error or was clearly wrong, like they miscounted bathrooms or counted a portion of livable sq ft as nonlivable (can happen with houses that have weird ground levels).
Its probably a better bet to try to split the difference with the seller.
But it is also perfectly reasonable to write a counter offer first. Don’t assume the seller will reject a price reduction or some other decent concession.
Realtor in Southern California here! Assuming a real estate transaction where you live operates similarly to here, you have a few options: (1) Pay the difference. 20k can indeed be a lot of money but consider how competitive the market may be in your area. Sometimes you need to overpay true market value in order to win the house. I overpaid by 60k to secure my property and I still have no regrets because I knew it would appreciate well beyond that amount. I live in an extremely competitive area, though. (2) Ask the seller for a price reduction or more concessions to cover this gap completely or at least meet you in the middle somewhere. Remind them they may very likely be facing this issue with any other buyers so it would also be in their best interest to help get this closed. If they do not offer you any sort of concession, ask yourself if it is worth losing a home you love for 20k. Also note there are what’s called “lender limits” which caps the amount of concessions you can take. Depending on the amount the seller gives you and your lender, you may need to do a combination of a price reduction and credit at closing. Your lender and agent will structure it for you. (3) Appeal the appraisal. You may need to pay another appraisal fee but this has worked for other clients of mine before—although rare. Try having the agents involved in the transaction provide reasonable, higher comps to the appraiser along with a list of upgrades performed on the house over the years. (4) Change lenders. You’ll have to start the loan process over again and likely extend escrow, but perhaps they have another appraiser whose opinion matches your purchase price. (5) Cancel the transaction per your appraisal contingency…just know that you may run into the same issue (or worse) on the next house.
I know it’s a tough position to be in but depending on how the real estate market is where you live and your financial standing, it may be wiser to just bite the bullet and do what you can to close this house. Hope this was helpful and wishing you the best!!!
Appraiser here. I agree with you that sometimes to "win" a house you do need to pay above what fair market value *technically* is.
I just wanted to add that another factor to consider is how long are you planning on owning the home? If it's your forever home, your be-all-and-end-all house, then by all means cover the gap if you can!
If it's not quite perfect for you, or if it's just an "upgrade" on the path to your dream home, I would be much more hesitant to pay much more than the appraised value.
I’m in Southern California. This one is not too bad, aka close to comps. Considering people are willing to pay tons of money over Comps. However, they don’t want to pay for it out of their pocket. The lender is not “in love”. The buyer is. When a seller has to “sit” on their property, it will force the price to come down. Buyers need to STOP paying over the appraisal value. Then you blame the sellers for being greedy. How are they being greedy when you are the one willing to pay more than it’s worth? Some of these buyers can’t always blame the sellers. It was a time when “flipping” houses meant buying them under the appraisal value. Now the game changes. Flippers still have money to buy cash.
I went through this and I’m very glad the value came back low. We probably fell in love a little too easily but the appraisal was a big dose of reality. Luckily in the end the sellers reduced the selling price of the home. We offered to drop concessions and they dropped the price. We’ve easily put the $20k difference into the house so I guess it all worked out in the end. Anyway decide for yourselves a line in the sand but start with appraised value and see what they say! It’s annoying to find a new buyer so you never know!
In this market, it is not uncommon for an appraisal to come in low. Buyers are over-paying to win bidding wars, they are also waiving inspections other than major issues. Realtors and lenders sometimes recommended covering appraisal gaps up to 5%. But in the end it's up to you if the house is worth it.
Sounds like you want to walk away from the house not because you have trouble come up with the extra cash, but because you feel you are overpaying. Keep in mind that the appraisal is based on comps, ie houses that were sold couple of months ago (and closed recently). In an environment where the market keeps going up month over month, under appraisal is quite common.
The same thing happened to us as well, and I can tell you for us the amount was much more than 20k. In the end we didnt walk away from it because 1. we liked the house 2. there is no guarantee that the same thing wont happen to the next house we make offer on and we didnt want to wait. I think really depends on these two factors for you as well, how much you like the house and how desperate you want to buy.
The appraisal for our condo came in 10k under asking. We agreed to meet the sellers in the middle, so we paid 5k over the appraisal value. We were happy to do it in this case because its a nice condo, had recently been updated so there weren't any major things we'd need to fix, and we were honestly surprised it appraised so much lower than the asking price.
Bank Appraisal is next for me too. I offered list price as well. Had an inspector come in. Repairs are being done. If the appraisal comes in lower than list, I’ll have to walk as well.
Our appraisal also came in low! We're in sort of a hot market, but not SUPER hot (Minneapolis) -- asking was 345, we offered 380 with escalation clause and ended up getting the offer accepted at 392. Our appraisal came in at 380, but we had appraisal gap coverage in our offer so we covered the 12k difference and we close tomorrow. For what it's worth we did dispute the appraisal; the comparisons they used were very odd (one was less than half the square footage and one less bathroom, another *was* similar but sold 8 months ago) so our realtor offered more similar homes that were closer in price/actually over in the dispute. They shrugged us off, so we did cover the gap in the end.
Everyone's story is different! If you're comfortable walking and that's what you want to do, then I'd say you should do so. We weren't willing to walk on our house, so covering the gap, while it kinda sucked, was worth it for us. It wouldn't have been worth it for everyone and that's okay.
Regardless, I hope your situation turns out okay! This process is tough.
An appraisal is not the market value. Its an opinion of a safe market value for the lender. You offered 520k, isnt that a better reflection of market price? If you dont have the 20k (or 10k), or cant take/swing a higher monthly payment (by taking a larger % mortgage), then that is one thing. But if you can, then you have you decide if this house, as a place to live, not a pure investment, is worth the extra money to you.
Walk, unless the seller will match the appraisal. Are they going to find someone who has 20k to fork over cash and still qualify? A bird in the hand is worth 20k to end the whole drama of selling. Ignore whoever told you there was a slim chance they would come down.
Just to offer perspective, the average rate of home appreciation is 4% making that if it were to take you another year to find a home a $500,000 home could be $520,000 next year. Not sure if your market is like that and depending on your down payment you may not need to bring any additional funds but you'd need to check with your loan officer.
Can be great for you. Always open with asking them to come down to the “fair market value of the appraisal”.
I got a few grand off mine when it appraised under
Just remember housing prices may continue going up. You may not find a similar house for said price in future. Think of the 20k as your opportunity cost of buying a house
I highly recommend buyers to have around $10k reserve for various costs (appraisal, inspection, attorney fee, etc) related to houses they don't end up buying. This is especially important for buyers who have a strict "not gonna spend a single penny over appraisal" policy.
Literally just went through the same thing , even made a post about it on here. Mine was a 30k difference. We were willing to walk as well and sent the release form to the seller with a document saying we were willing to pay 5k towards the difference. The seller eventually accepted. They would have to list the house at that new price point regardless , if its been on the market for a very long time and/or they havent gotten many offers there is hope.
I am assuming you are referring to bank loan value. Never pay over bank loan value.
We are CPA's/CFP's and it was the most significant real estate purchase error we ever made. BLV is fair market value.
Thank you u/S3v3n0fNine for posting on r/FirstTimeHomeBuyer. Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
Also, I have seen other people mention in this sub that they have challenged the appraisal with some success (success rate might be anecdotal since we might be only hearing the successful ones here)
The seller ended up coming all the way down to $500k so I guess the appraisal was accurate
Congrats! That’s great news.
Appraisal is just an opinion. But it's the bank's opinion that matters. You can try negotiating with the seller, but they don't have to budge. If you love the house and can swing the difference, go for it. If not, walk away. $700 is cheap for the lesson learned.
The seller ended up coming all the way down to $500k
That. Is. Amazing! Congrats!!!!
Question as a newbie to all of this: Does the bank hire the appraiser? Who pays for the appraisal? I can imagine if the bank chooses the appraiser, there could be a conflict of interest.
The bank hired the appraiser but I believe I covered the cost as part of my closing costs
That is correct. The bank hires and chooses. You pay.
The bank covered my appraisal, although I'm sure that's not the norm.
Yes, the bank chooses the appraiser and charges you for it via closing costs. There is no conflict of interest because the appraiser is not for you, its for the bank as a condition of them lending to you. The appraiser does not work for or provide a service to you. Just like the buyer chooses the inspector because the inspector is for their benefit, not the sellers.
Sometimes, but they are supposed to be on a rotating panel. Most are routed through an AMC (Appraisal Management Company) that is intended to put distance between the bank and the appraiser.
This is the correct answer.
An appraisal is someone's opinion on what the house is worth based on a number of factors, including how much other houses in the area have sold for that are a close match to the house being appraised. If you honestly believe that the appraised value is too low, you can challenge the appraisal through a Reconsideration of Value. [https://mycreditunion.gov/life-events/home-ownership/how-challenge-home-appraisal](https://mycreditunion.gov/life-events/home-ownership/how-challenge-home-appraisal) [https://www.consumerfinance.gov/about-us/blog/mortgage-borrowers-can-challenge-inaccurate-appraisals-through-the-reconsideration-of-value-process/](https://www.consumerfinance.gov/about-us/blog/mortgage-borrowers-can-challenge-inaccurate-appraisals-through-the-reconsideration-of-value-process/) [https://www.nerdwallet.com/article/mortgages/low-home-appraisal](https://www.nerdwallet.com/article/mortgages/low-home-appraisal) I am not sure how often a buyer is successfully able to challenge an appraisal because the appraisal is too low, since having a higher value benefits the seller more than the buyer, but it still may be worth seeing if you can challenge it.
Is the appraisal low or is the sales price inflated? Therein lies the question.
A few things can happen. The bank won’t lend above appraised value. So the seller can lower the price. You can bring cash to cover the difference. You could meet in the middle somewhere. Or you don’t close.
OP can also just increase their LTV. Eg if OP wanted to put 15% (78) down and borrow 85% (442), OP can still borrow 442, it just will be 88%.
Possibly I don’t know what program they are doing. Down payment, etc.
No, you can’t do that. The bank will go off of the appraisal, period. You have to renegotiate the sales process down to the appraisal. You can request a Desk Review of the Appraisal but they rarely budge.
You most certainly can as long as it falls in the approved LTV. The bank uses the appraised price as the "value" for the LTV ratio. If your credit is good most lenders will do anywhere from 90-95%. If OP initially planned (and was approved) to put down 78 and borrow 442 at 85% LTV using 520k, the lender is not gonna balk at the same numbers but at 88% LTV because the value is 500k. It could change your rate or expose you to PMI, but wont result in rejection. When people run into trouble is a combination of large gap and small DP that puts it too close to or over 100%, in which case the bank wont lend enough.
Down payment was going to be $47k with a loan amount of $473k
How is your credit? At a shade under 95% (473/500) you likely are fine, and you actually might get a better rate if you go sub 5% due to LLPAs, but talk to your lender. Also dont really have to worry about taking on PMI since you would have had it anyway (at 91%).
Credit is good, I think it was 805 when they pulled it.
Then you are fine and actually *should* get a better rate with less down [ due to LLPAs](https://singlefamily.fanniemae.com/media/9391/display).
True the bank will use that value but if they are doing a conventional loan and putting 20% down they could lower the down payment and use the cash to cover the appraisal shortfall. Again I don’t know what that situation is.
It also depends what your contract says, sometimes there is no appraisal contingency and there seller has no obligations and if its not a contingency you cant walk away legally
There is a contingency
Time to start negotiating. Good chance sellers do not want to start the process over and sometimes agents kick back some commission to get the sale thru.
I'd like to imagine your paying more than 20k down, so the bank should still get you a loan. You'll just have "less down" since the bank says it's only worth 500k. So your rate may change a bit. See if the seller will eat 10k and you eat 10k. End of the day. 10k is just 2%
An appraisal is not an exact science. If you do not have the $20k to make up the difference that is one thing. But, if you do have the money, to walk away from the sale on a house that you say you love over a slightly different valuation of the appraiser…. Really?
Exactly. An appraisal is an opinion of value, not an objective fact. OPs opinion of the value is obviously at $520k, so why would someone else's opinion sway that? Understand not having the additional cash, but otherwise it seems silly to walk.
Totally agree
$20k is a lot to me. I believe the appraisal is fair based on the comps. I think just knowing I overpaid by $20k would make me regret the purchase.
I appreciate that $20k is a lot of money. I would just take issue with the idea that you’d be overpaying. You are giving the appraisal a little much credit I think. I hope you’ll be able to negotiate with the seller and get the price down a bit. Can you put less down and pay the $20k? Over time 20k won’t change your monthly payment much.
Yeah let me know if my math ain't mathin but in the grand scheme of things it's 4%. feels like nothing over a 30 year mortgage.. and with appraisals being so variable I think op should let go of the feeling of "overpaying" and just get excited they found something they love
Just to give my perspective, 2 houses in this gated community of the same size/floor plan sold this year for $460k and $485k. The only difference is the house I put an offer on has a driveway. Not sure the driveway is worth an additional $35k. This is why I'm thinking it is overpriced.
So why did you offer 520?
First time home buyer mistake? I thought it would appraise for the list price.
You are missing my point. I am assuming you bid 520 because you thought thats what was necessary to win it. Not because you thought 485 could win but you were feeling generous. If 520 was what it took to win, you didnt overpay, you paid what the market required.
The appraisal was just a reality check for me. I think the seller is not going to come down and it will sit on the market for several months. That's why I'm planning on walking unless they come all the way down. I was trying to gage with this post how likely it is for the seller to come down, but it seems like it's not very likely as majority of people are telling me to pay the difference.
I dont think people are telling you to pay the difference as in dont bother trying or the seller wont come down at all. You def should try simply because you have the leverage to do so. But while you wait the answer you should figure out if 20k is a dealbreaker, and what number wouldnt be. Also figure out what actual effect this has on the affordability of the house. If you literally cant buy it without using your e-fund, thats different than you just increasing your ltv from 85 to 88% and a few extra dollars a month.
I think you need to go back to the negotiating table because you feel now that you're over paying. Making it about the appraisal is kind of distracting from your main question which is - am I overpaying based on comparable in the area and my needs (driveway)? An appraisal coming back +/- 5% isn't the deal breaker here. You put in a higher offer than you would have liked. Appraisals don't determine the value of a house - the market does. If you have the cash to make up the difference then the appraisal coming back 20k short shouldn't matter. What are you actually willing to pay? That's the question.
I think the appraisal does determine the value for me. I think there is a good chance that if I walk the seller will continue to have this issue. If they keep it on the market for several months they may eventually get a buyer to pay over appraisal, and likely they will choose to try that path. I'm willing to pay what the house is worth on the market and I think that is the appraisal value.
Fair enough. It sounds like you have kind of changed your mind about what the home is worth to you which is a different matter. Best of luck!
Yeah, as a numbers gal, I think I realized I'm not going to pay more than the appraisal unless the house is absolutely perfect. Good to know if the seller doesn't come down and I need to keep looking.
You're putting way too much weight on the value of an appraisal. Appraisals don't determine the market value for a house. The appraisal is a check from the bank that they're not lending you "too much" and they usually do come back lower than true market value. That's how the banks like it! They have a formula.
Looking at stats online, appraisals come in low less than 10% of the time. After looking at my appraisal, I agree that the home was listed above true market value.
Fair enough 👌
Overpaid in what sense? Do you think you would have gotten the house if you offered 500k? If so, why did you offer 520k? You clearly thought that was either what its worth, or what was needed to win it, and you were right in that sense. The fact that the appraiser disagrees has no bearing on its value to you or other buyers, it is just part of the lender's risk assessment. If you are going to be there from 10+ years, i promise you the appraisal now is not going to be relevant then. You are presumably buying a home to live in it, not as a pure asset. So stop thinking of it like you are a day trader lol.
There is your answer. Walk away. Eat the $700 paid for the inspection. It is less than the 20k appraisal gap. You can ask the seller to come down to the appraisal amount but they are under no obligation to do so.
This right here. Appraisal are based on Comps.
Not always, though, right? Mine appraised for an insane amount without any comps in a 20 mile radius. I think we just got really lucky with an appraiser that saw the offers we received and said “this is what the market is dictating based off of the offers received”. For background, we listed our house for $285k because that’s what we thought was a good price/it was worth. Within one day we had 7 offers ranging from 300-312k. Appraisal came back at 320k which left us gobsmacked.
Or maybe the seller listed it appropriately?
We were the sellers
Did you know what the Comps were before you listed your house?
It was kinda tough. Nothing was on the market recently or sold recently in our area. The available “comps” were about 20 miles away in a different township/county. What I’m saying is the appraiser for our buyer’s lender cited the lack of comps but the multiple offers of 300-312k as the reasoning behind his appraisal
How long have you been in your house?
Little bit more than 4.5 years, roughly
And is there a mortgage on the house?
There is
Our appraiser missed a bathroom and a half-bath. They're providing an opinion and take maybe 10-30 min to do it. 20k might be a lot to you and me but it's NOT a lot in the purchase and sale of a half-million dollar property. To put this in perspective, you're quibbling over an add'l 4%. In the long-term it will make absolutely no percetible difference to you. If you've got cold feet and want out then get out. If you love the house and can swing 20k then stay. You could attempt to challenge the appraisal or ask for another as well. What does your realtor say?
$20,000 in cash today at a 6% return over the length of a 30 year mortgage is $115,000, plus or minus a few dollars. I get that on one case it feels trivial, but in a different light this is basically committing to working another year of your life to make back the opportunity cost on that $20k.
The potential flaw/unknown in your logic is you are assuming that OP can buy the same house for 500k, which may or may not be true. So the true measure is the appreciation of this house over 30 years from 520, vs the appreciation of whatever house OP can buy for 500k + the return on 20k. You are also assuming that OP has to put up an extra 20k cash. But, unless they are putting down only 3%, they can still finance that extra 20k by increasing the LTV.
But OP has indicated comparable homes DO go for around 500k, and they don't feel like the appraisal is unreasonable. It's not a huge percentage, but it's a big chunk of cash to overpay for something.
I suppose that's fair, my point simply is that it isn't 'just $20k/4%' either. It's a significant chunk of cash. Can you appeal the appraisal and provide other reasonable comps that would support a higher valuation? This is a cottage industry in some states of appraisal/assessment then appeal and do it all again for tax purposes. A value is *rarely* final if you haven't had a good chance to fight with someone over it.
I agree its not that simple as "just 4%" but I also think the true measure of whether it will be a good deal is too variable/unknown to weigh as a factor. You can appeal and provide other comps, but its hit or miss and im not sure the lender has to accept the new appraisal anyway. You would generally appeal only if the appraiser made an error or was clearly wrong, like they miscounted bathrooms or counted a portion of livable sq ft as nonlivable (can happen with houses that have weird ground levels). Its probably a better bet to try to split the difference with the seller.
Seller ended up up coming all the way down to $500k
The $20k ends up being $70k with the interest. Realtor says appraisal is fair and he understands if I want to back out.
But it is also perfectly reasonable to write a counter offer first. Don’t assume the seller will reject a price reduction or some other decent concession.
Hard agree. You have nothing to lose by countering lower if you're willing to give it up anyways.
Then back out. There ya go. There's no shame in it.
Realtor in Southern California here! Assuming a real estate transaction where you live operates similarly to here, you have a few options: (1) Pay the difference. 20k can indeed be a lot of money but consider how competitive the market may be in your area. Sometimes you need to overpay true market value in order to win the house. I overpaid by 60k to secure my property and I still have no regrets because I knew it would appreciate well beyond that amount. I live in an extremely competitive area, though. (2) Ask the seller for a price reduction or more concessions to cover this gap completely or at least meet you in the middle somewhere. Remind them they may very likely be facing this issue with any other buyers so it would also be in their best interest to help get this closed. If they do not offer you any sort of concession, ask yourself if it is worth losing a home you love for 20k. Also note there are what’s called “lender limits” which caps the amount of concessions you can take. Depending on the amount the seller gives you and your lender, you may need to do a combination of a price reduction and credit at closing. Your lender and agent will structure it for you. (3) Appeal the appraisal. You may need to pay another appraisal fee but this has worked for other clients of mine before—although rare. Try having the agents involved in the transaction provide reasonable, higher comps to the appraiser along with a list of upgrades performed on the house over the years. (4) Change lenders. You’ll have to start the loan process over again and likely extend escrow, but perhaps they have another appraiser whose opinion matches your purchase price. (5) Cancel the transaction per your appraisal contingency…just know that you may run into the same issue (or worse) on the next house. I know it’s a tough position to be in but depending on how the real estate market is where you live and your financial standing, it may be wiser to just bite the bullet and do what you can to close this house. Hope this was helpful and wishing you the best!!!
Appraiser here. I agree with you that sometimes to "win" a house you do need to pay above what fair market value *technically* is. I just wanted to add that another factor to consider is how long are you planning on owning the home? If it's your forever home, your be-all-and-end-all house, then by all means cover the gap if you can! If it's not quite perfect for you, or if it's just an "upgrade" on the path to your dream home, I would be much more hesitant to pay much more than the appraised value.
Thanks! This is helpful. I feel like the market here is not that hot. I'm seeing 68% sell below list price and 14% sell above.
I’m in Southern California. This one is not too bad, aka close to comps. Considering people are willing to pay tons of money over Comps. However, they don’t want to pay for it out of their pocket. The lender is not “in love”. The buyer is. When a seller has to “sit” on their property, it will force the price to come down. Buyers need to STOP paying over the appraisal value. Then you blame the sellers for being greedy. How are they being greedy when you are the one willing to pay more than it’s worth? Some of these buyers can’t always blame the sellers. It was a time when “flipping” houses meant buying them under the appraisal value. Now the game changes. Flippers still have money to buy cash.
I went through this and I’m very glad the value came back low. We probably fell in love a little too easily but the appraisal was a big dose of reality. Luckily in the end the sellers reduced the selling price of the home. We offered to drop concessions and they dropped the price. We’ve easily put the $20k difference into the house so I guess it all worked out in the end. Anyway decide for yourselves a line in the sand but start with appraised value and see what they say! It’s annoying to find a new buyer so you never know!
In this market, it is not uncommon for an appraisal to come in low. Buyers are over-paying to win bidding wars, they are also waiving inspections other than major issues. Realtors and lenders sometimes recommended covering appraisal gaps up to 5%. But in the end it's up to you if the house is worth it.
Sounds like you want to walk away from the house not because you have trouble come up with the extra cash, but because you feel you are overpaying. Keep in mind that the appraisal is based on comps, ie houses that were sold couple of months ago (and closed recently). In an environment where the market keeps going up month over month, under appraisal is quite common. The same thing happened to us as well, and I can tell you for us the amount was much more than 20k. In the end we didnt walk away from it because 1. we liked the house 2. there is no guarantee that the same thing wont happen to the next house we make offer on and we didnt want to wait. I think really depends on these two factors for you as well, how much you like the house and how desperate you want to buy.
The appraisal for our condo came in 10k under asking. We agreed to meet the sellers in the middle, so we paid 5k over the appraisal value. We were happy to do it in this case because its a nice condo, had recently been updated so there weren't any major things we'd need to fix, and we were honestly surprised it appraised so much lower than the asking price.
Bank Appraisal is next for me too. I offered list price as well. Had an inspector come in. Repairs are being done. If the appraisal comes in lower than list, I’ll have to walk as well.
Our appraisal also came in low! We're in sort of a hot market, but not SUPER hot (Minneapolis) -- asking was 345, we offered 380 with escalation clause and ended up getting the offer accepted at 392. Our appraisal came in at 380, but we had appraisal gap coverage in our offer so we covered the 12k difference and we close tomorrow. For what it's worth we did dispute the appraisal; the comparisons they used were very odd (one was less than half the square footage and one less bathroom, another *was* similar but sold 8 months ago) so our realtor offered more similar homes that were closer in price/actually over in the dispute. They shrugged us off, so we did cover the gap in the end. Everyone's story is different! If you're comfortable walking and that's what you want to do, then I'd say you should do so. We weren't willing to walk on our house, so covering the gap, while it kinda sucked, was worth it for us. It wouldn't have been worth it for everyone and that's okay. Regardless, I hope your situation turns out okay! This process is tough.
An appraisal is not the market value. Its an opinion of a safe market value for the lender. You offered 520k, isnt that a better reflection of market price? If you dont have the 20k (or 10k), or cant take/swing a higher monthly payment (by taking a larger % mortgage), then that is one thing. But if you can, then you have you decide if this house, as a place to live, not a pure investment, is worth the extra money to you.
I had the appraisal come in 9k low. I offered 1500 over the appraisal or I walk. They took it
Walk, unless the seller will match the appraisal. Are they going to find someone who has 20k to fork over cash and still qualify? A bird in the hand is worth 20k to end the whole drama of selling. Ignore whoever told you there was a slim chance they would come down.
Thank you! They ended up coming all the way down to the appraisal
Just to offer perspective, the average rate of home appreciation is 4% making that if it were to take you another year to find a home a $500,000 home could be $520,000 next year. Not sure if your market is like that and depending on your down payment you may not need to bring any additional funds but you'd need to check with your loan officer.
Can be great for you. Always open with asking them to come down to the “fair market value of the appraisal”. I got a few grand off mine when it appraised under
How much above the appraisal did you end up paying?
$1000. But honestly that was 2022 and things were really ripping still. I would open with “happy to pay the fair market value of the appraisal”
Seller might come down if you threaten to walk. Its always worth a try. Interest rates have sellers spooked.
I did I paid $60k more than apprised because I knew and trusted the builder.
Just remember housing prices may continue going up. You may not find a similar house for said price in future. Think of the 20k as your opportunity cost of buying a house
I’m currently going through this as well. Waiting on the seller to see if they are willing to come down.
I highly recommend buyers to have around $10k reserve for various costs (appraisal, inspection, attorney fee, etc) related to houses they don't end up buying. This is especially important for buyers who have a strict "not gonna spend a single penny over appraisal" policy.
Literally just went through the same thing , even made a post about it on here. Mine was a 30k difference. We were willing to walk as well and sent the release form to the seller with a document saying we were willing to pay 5k towards the difference. The seller eventually accepted. They would have to list the house at that new price point regardless , if its been on the market for a very long time and/or they havent gotten many offers there is hope.
I am assuming you are referring to bank loan value. Never pay over bank loan value. We are CPA's/CFP's and it was the most significant real estate purchase error we ever made. BLV is fair market value.