Bank appraisal accuracy, contract part of appraisal! (Westfield, Summit: sale, mortgage)
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I have a Summit area house that I am under contract with being appraised by our lender next week. I feel based on comps in the area, of which there are not too many, that I am slightly overpaying for the house, maybe 10K on ~500. It has some nice features, but it is the highest priced house in the area over the past several months. I didn't think much of it because *I explicitly put in a contingency in my contract* that if the appraisal price does not come in at the purchase price, I can walk unless the seller brings the price down to the appraisal price.
I assumed the appraisal was blind. To my shocking, horrifying astonishment, I recently learned that the purchase contract is part of the appraisal process, which means the inspector knows the sale price of the house!! This makes it that much easier to just check the box.
My questions are:
1) do you have any experience with having the house you are buying appraised at a lower value?
2) did you feel you might be slightly overpaying for your house and was counting on the appraisal to account for this.
3) do you know how "accurate" appraisals are? That is, is it likely a non-trivial difference like more than $1000 is likely to be picked up by the appraisal?
If it helps, our lender is Coldwell.
Last edited by johnredcorn7; 11-29-2015 at 01:51 PM..
Reason: more info added
I have a Summit area house that I am under contract with being appraised by our lender next week. I feel based on comps in the area, of which there are not too many, that I am slightly overpaying for the house, maybe 10K on ~500. It has some nice features, but it is the highest priced house in the area over the past several months. I didn't think much of it because *I explicitly put in a contingency in my contract* that if the appraisal price does not come in at the purchase price, I can walk unless the seller brings the price down to the appraisal price.
I assumed the appraisal was blind. To my shocking, horrifying astonishment, I recently learned that the purchase contract is part of the appraisal process, which means the inspector knows the sale price of the house!! This makes it that much easier to just check the box.
My questions are:
1) do you have any experience with having the house you are buying appraised at a lower value?
2) did you feel you might be slightly overpaying for your house and was counting on the appraisal to account for this.
3) do you know how "accurate" appraisals are? That is, is it likely a non-trivial difference like more than $1000 is likely to be picked up by the appraisal?
If it helps, our lender is Coldwell.
I seriously doubt they would appraise it for 10k less than the purchase price. There is no point when you are talking about a $500k house. If you were hoping to use the appraisal to lower your purchase price I think you are reaching unless you are really overpaying.
I have a Summit area house that I am under contract with being appraised by our lender next week. I feel based on comps in the area, of which there are not too many, that I am slightly overpaying for the house, maybe 10K on ~500. It has some nice features, but it is the highest priced house in the area over the past several months. I didn't think much of it because *I explicitly put in a contingency in my contract* that if the appraisal price does not come in at the purchase price, I can walk unless the seller brings the price down to the appraisal price.
I assumed the appraisal was blind. To my shocking, horrifying astonishment, I recently learned that the purchase contract is part of the appraisal process, which means the inspector knows the sale price of the house!! This makes it that much easier to just check the box.
My questions are:
1) do you have any experience with having the house you are buying appraised at a lower value?
2) did you feel you might be slightly overpaying for your house and was counting on the appraisal to account for this.
3) do you know how "accurate" appraisals are? That is, is it likely a non-trivial difference like more than $1000 is likely to be picked up by the appraisal?
If it helps, our lender is Coldwell.
The contract is always supplied to the appraiser. Indeed the appraiser is required to analyze the contract. And yes, if it's close, you will often see the appraisal come in at the same price as the contract. And the appraiser is not God who determines the value. An appraiser measures the value based on comps and adjustments for differences. However, the appraisal is NOT the value. It is an OPINION of value. So you could pay $510,000, the appraiser could come in at $495,000, and the house could still be worth $510,000. Appraisal methodology is not so precise as to be able to opine on value to a resolution of $10,000 or $15,000 on a $500,000 home.
So, you should not even be looking at the appraisal. It is a tool for the lender, not a confirmation of the financial decision that you made.
And in all fairness, if the appraisal came in $10,000 higher, would you demand the same fairness from yourself as you are from the seller? No, of course you wouldn't. You would take his money and run!
So just make your decision based on your reading of the market and move forward rationally. Do not try to hustle the seller out of the price you agreed to pay based on the appraisal. That's not what the appraisal is for, and using it that way is misuse.
Do not try to hustle the seller out of the price you agreed to pay based on the appraisal. That's not what the appraisal is for, and using it that way is misuse.
This isn't how the world works for most people without tons of extra cash around who are dependent on a mortgage.
If the house gets appraised at 490, and the sale price is 500, the MORTGAGE will only be based on a 490. This means I need to come up with that extra 10K out of pocket. I don't have the extra 10K in pocket (without eating into my emergency savings) to pay. That is why I have a contingency that says if the appraisal is low, the seller eats that difference, or I can walk, because I need the mortgage to be for the sale price of the house.
Moreover, it is not a hustle; I put it into the contract explicitly and they knew what they were signing. There are no surprises here.
Last edited by johnredcorn7; 12-01-2015 at 07:46 PM..
This isn't how the world works for most people without tons of extra cash around.
If the house gets appraised at 490, and the sale price is 500, the MORTGAGE will only be based on a 490. This means I need to come up with that extra 10K out of pocket. I don't have the extra 10K in pocket (without eating into my emergency savings) to pay. That is why I have a contingency that says if the appraisal is low, the seller eats that difference, or I can walk, because I need the mortgage to be for the sale price of the house.
I have been the agent on a deal where we over paid $50,000 on a home. When we went into it the buyer was told that they were overpaying $50,000. The Appraiser came in $45,000 below the deal.
Now this is not all madness. The house is a work of art...and the buyers just dumped a west coast property at an irrational figure...and $35,000 more than their asking price.
On the other hand we have recently dealt with an appraisal that came in 75,000 to 100,000 under market value. Turns out this particular appraiser thinks some homes built in the 1980s are overvalued. The loan officer involved wanted us to go after her and try and get her barred from the area. We declined as we have been involved with appraiser disputes before and their is nothing in it for us. You simply take your client to a different bank and get a new appraisal.
I would also observe that if a buyer is stretched by a few percent increase in the down payment they should think hard about the deal. While stretching hard for a first house may be rational...being stressed in this price range is not.
I would also observe that if a buyer is stretched by a few percent increase in the down payment they should think hard about the deal. While stretching hard for a first house may be rational...being stressed in this price range is not.
I am comfortable making the downpayment based on the selling price. I have a 6 month emergency fund, assuming I were fired tomorrow, leftover. I am not comfortable eating into that due to a low appraisal. I would rather walk from the deal and find a house with a lower price. Or, the seller can choose to come down.
I am comfortable making the downpayment based on the selling price. I have a 6 month emergency fund, assuming I were fired tomorrow, leftover. I am not comfortable eating into that due to a low appraisal. I would rather walk from the deal and find a house with a lower price. Or, the seller can choose to come down.
Well we have to get the appraisal first! Chances are it will come in at the salesprice like everyone said. I cannot walk away from the contract unless the appraisal fails. If it does, the seller has the option to come down. If they do not want to come down, the deal ends. I covered my ass in my contract.
Well we have to get the appraisal first! Chances are it will come in at the salesprice like everyone said. I cannot walk away from the contract unless the appraisal fails. If it does, the seller has the option to come down. If they do not want to come down, the deal ends. I covered my ass in my contract.
i would bet the house that the appraisal comes in at or 10k above your contract price. Isn't the market value of the home the amount you are willing to pay and the seller is willing to accept? It is, according to one definition. using the appraisal formula, however, in places with strong sellers' markets like Summit or Westfield over the past two years will probably not result in an appraisal below contract price, unless we are talking about a number way off market price. do not bank on the appraisal coming in 10k below on a 500k home.
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