With the regular flow of foreclosures into the market place prices continue to be impacted and appraisals are often times coming in lower that the contract price. In previous articles, which can be accessed under the Appraisal category of our blog we have addressed how to approach these issues from the appraisal perspective. We will now look at additional alternatives to resolving low appraisals.
Always include an Appraisal Contingency in your agreement. This spells out the basic guidelines for resolving low appraisals. Our state approved and most widely used GAR contracts provided an Appraisal Contingency Exhibit that when used will provide the following terms and conditions regarding low appraisals.
1. Provided the buyer submits a copy of the appraisal and an amendment requesting the seller reduce the price to the appraised value within the number of days provided to do so; the seller would be provided a set number of days to respond by reducing the price. The number of days may be as few as one or may extend to the date of closing. In the event seller accepts the amendment to reduce the price the matter is resolved.
2. In the event the seller does not agree to lower the price, the BUYER if convinced that the appraisal is low may want to have their lender order another appraisal? It is a good idea to determine in advance of the second appraisal who will pay for it and what role it will have in resolving the question of and sales price. This should be in writing.
3. If the second appraisal comes in low also, and the seller will not reduce the price, and the BUYER still wants the house, then consider the following.
4. Negotiate with the seller to arrive at a sales price that more accurately reflects the value of the property. If done prior to having the second appraisal done merely reflect the change in an amendment.
5. Come up with the extra cash needed to make up the difference between the sales price and the appraised value.
6. If cash is a problem request that the seller hold a second mortgage for the difference and work out a payment plan that will not adversely affect your debt to income qualifying ratios. Quarterly, semi annual or annual payments are options.
7. If the seller does not want to hold the mortgage then ask your agent or broker to buy the note from the seller or call us. The seller can then sell the note for an agreed upon amount and receive all their cash at closing. The buyer would then make payments to the holder of the note.
This approach will only work with conventional loan types where a buyer is putting at least 10% down.
8. And don’t forget; you can always terminate the contract and see how the seller responds to that. In the end you may get more mileage from this approach that from any other.
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Van Purser is a licensed real estate broker in Georgia. Since1981 he has successfully purchased and renovated over 400 homes. His expertise is in the area of foreclosures, rehabs and fixer uppers. Additionally, he has represented hundreds of clients over the years as a broker with Metro Brokers, RE/Max and now with his own firm. He and his wife, Jeanne, who is also a broker, have been married since 1977. For follow up on this article you may email Van at VanPurser@VanPurser.com