Banker deals with appraisal coming in less than purchase price

Mortgage banker: Harry Sessa

Purchase price: $550,000

Loan amount: $440,000

Loan type: Conforming fixed rate

Backstory: Harry Sessa recently had two well-qualified borrowers whose loan approval was obtained within less than 10 days. The clients were exceptionally well qualified, with a high credit score and a down payment of 20 percent. In addition, they had more than the required assets in reserves. The loan was approved with the condition that the property appraises at or above the purchase price on the contract.

Unfortunately, the appraisal came in at $535,000, which was $15,000 less than the contracted price of $550,000.

The rule of thumb when this happens is the lender will lend 80 percent of the purchase price or the appraised value whichever is less. The borrowers were notified of a few options available to move forward.

Option 1: Reduce the loan amount to 80 percent of the appraised value ($428,000) and pay the additional $12,000 down payment.

Option 2: If there is a belief the appraiser overlooked some important information, ask the lender to appeal/dispute the appraisal. A dispute must include the information that you feel the appraiser missed. For instance, the Realtor may be able to provide additional comparable sales not on the initial appraisal report. These would be submitted to the appraiser by the lender for the appraiser’s consideration to see if they would agree that these were better indications of value and revise the report.

Option 3: Work with your Realtor to go back to the sellers and try to renegotiate the sales price closer to the appraised value.

For the most part, in a relatively stable real estate market, appraisals will come in at or very close to the actual purchase price. Unfortunately, most buyers don’t understand the appraisal is a reflection of the value of the property in terms of comparing recent sales of similar properties. In markets where there is little inventory and competitive bidding it is not unusual for the purchase price to be more than the appraised value.

Sessa’s clients were disappointed, but understood that the reason the appraisal came in at less than the agreed purchase price was a result of lack of comparable sales reflective of the contracted price. The Realtor brought this information to the sellers and renegotiated the sales price to $542,500. The loan amount was reduced to 80 percent of the appraised value ($428,000) with the same terms and rate.

The difference in this case was the Buyers had to put down $4,500 more out of pocket for the property and the sellers agreed to accept $7,500 less than the original purchase price.