Appraisals are a real Bear these days.
Take our most recent experience (please).
Beverly's buyer was under contract to purchase for 230K. The appraisal (to the surprise of all) came in at 209K. Wow, a $21,000 difference!
The problem:
The comps used by the appraiser were valid, but it just so happens that most comps were foreclosures, which the appraiser is obligated to use in the analysis, particularly since there weren't any "traditional non stress comps". So, the seller has a choice - either adjust the price to the appraisal price so the buyer can get the loan, or just not sell to this buyer. Keep in mind, the next buyer may have an appraisal that comes in even lower. And, one more little known secret. IF the first appraisal was for a FHA loan, this FHA appraisal will be assigned to follow the property address for six months. The Seller would then have to sell to a conventional loan buyer in order to generate the new appraisal process. Do you know how many conventional loan buyers are out there? A conventional loan buyer must put 10-20% down vs the FHA buyer who puts 3.5% down. FHA buyers far outweigh the conventional buyer in this market and price range under about 350K.
Here's how we worked it out:
The investor seller agreed to adjust his sales price to 213K, which is still higher than the appraisal price but still allows a profit. The buyer agreed to pay all the closing costs, relieving the seller of the $4K obligation previously agreed and will pay the difference of appraisal price and sales price of 4K. The buyer has a net increase of $4200 after adjustments are made for difference in down payment amount, but will buy the home for 17K less than expected.
Win/Win for everyone. The neighborhood value is helped. The buyer will have a home. The seller/investor will move on to another investment. The lender, closing attorney, realtors, carpet company, granite installers, appliance company, general contractor, HVAC company and countless other related entities will all get paid. Don't try this with everyone. Reasonable buyers and sellers are required. (And a little BEE power!)
