Ok, now I am definately not advocating any funny business or any faulty appraisals here. An appraisal with fudged numbers and unrealistic comparables does not do anyone any good. And, it won’t make it through underwriting and then the deal is dead anyway. Plus, we don’t need anymore bad deals out there – this is part of the reason the housing market took a dive to begin with.
What I am saying is that if you get one appraisal that is not where you’d like it to be it does not hurt to get a second opinion (or 3rd or 4th). You would get a 2nd opinion from a doctor if you were not sure about the original diagnosis, right?! So, why not get a few opinions for what is probably the largest purchase you will make?
I bring this up because I just had clients who had an accepted offer on a home in Richfield, MN that they absolutely loved and 2 weeks prior to closing the appraisal came back $75,000 UNDER their offer price! Nothing against the appraiser that did the appraisal or the lender who ordered it – they did a great job but we wanted to see what other appraisers would have to say.
So, what happened?
This house in Richfield was somewhat overdeveloped for the neighborhood it is in (I have to say it is gorgeous!) so there were no accurate comparables to choose from. Going into the offer, we knew this but to my clients, the house was worth the offer price (and the seller’s were firm on their pricing). The appraiser did a very thorough job but bottom line, if this house had been in Edina or Minneapolis it would have hit the offer price NO PROBLEM!! Unfortunately, Richfield does not have as many high priced homes. So, instead of just walking away from their dream home, we went to 2 other lenders and 3 other appraisers to get their opinion.
What did we find out about this house in Richfield? 2 of our new appraisals came in $25,000 better and our final one came in $45,000 better than the original appraisal. How does this happen? These different lenders have underwriting with different guidelines on what comparables can be used. Again, these were legitimate appraisals! Sometimes there can be more leniency with local lenders.
Bottom line, we never did get an appraisal at the original offer price which is OK because now we know what the more realistic value of this house is and we were able to negotiate the offer down to the new appraisal. In this market, the seller’s now know that they would not get a higher price for their home and that if they wanted to sell it, they would have to come down to match the appraisal.
In the end, my clients got their dream home at a fair market price!
Now, you ask, what happens if the home appraisal comes in under the offer price and you can’t renegotiate the offer? What happens?
1. Home buyer can walk away due to financing
2. Home buyer can pay the difference between the appraisal and the offer price in cash at closing because the lender will not loan on the difference
3. Home buyer can get more opinions from other lenders and appraisers and potentially renegotiate again
Bottom line, it will depend on how badly you as a buyer want a house and how badly the sellers want to sell. Make it happen!
Looking to buy a home?
Give me a call!
Jen McKinnon
Realtor / Investor
MN Real Estate Team
612.384.1073
jen[at]mnrealestateteam[dot]com
