Appraisal Comes In Low? Options

“Remember all those smart folks who said rates were going higher this year? Well, so far they’re dead wrong”This quote is from Rob Chrisman’s mortgage blog: “Remember all those smart folks who said rates were going higher this year? Well, so far they’re dead wrong”

Here are a buyer’s options when an appraisal comes in low:

1. Renegotiate a price reduction with the seller. This option is rarely viable in a competitive market like today’s, when sellers have ample back-up offers.

2. Bring in the extra cash necessary to make up the appraisal shortfall. This option too is often not viable b/c buyers lack sufficient cash. Lenders will only lend against the appraised value, and not against the contract price. If an appraisal comes in $25,000 under contract, buyers have to bring in that $25,000 over and above their original down payment.

3. Rebut the appraisal. This approach has been surprisingly effective lately, as long as there is adequate data to support the rebuttal. Appraisers and appraisal companies are not as busy as they were in previous years, and are therefore more willing to take time to evaluate rebuttals and change values when justified.

4. Change financing to a lower down payment option, to free up cash to make up the shortfall. For example, a buyer planning to put down 20% on a $500,000 purchase could instead put down 10% if the appraisal comes in at $450,000. This buyer could then get 80/10/10 financing, and be “out of pocket” about the same amount he would have been out originally if the appraisal came in at value. Buyers can also switch to FHA financing and only come in with a 3.5% down payment. We have performed these “financing switches” many times to salvage transactions when appraisals come in low.

5. Switch lenders, and order a new appraisal. This only works in the “broker channel” and it cannot work with FHA appraisals ever. If a conventional appraisal comes in low with Franklin American, for example, we can simply order a new appraisal with Cole Taylor. Cole Taylor pays no heed to Franklin’s appraisal. With FHA, however, appraisals stick to the property no matter which lender is used.