PARAMOUNT MORTGAGE - LENDER'S BLOG

“Getting an appraisal to match the price for which one's lender has preapproved a mortgage can be more art than science,” reports Alan J. Heavens, veteran real estate writer at Philly.com.

In June, a sizable share of U.S. purchase contracts for previously owned houses, signed 45 to 60 days earlier, were canceled by buyers because of appraisal/asking-price mismatches.

Having a contract fall through is tough on the buyer and it leaves the seller out in the cold, especially if he or she have contracted to buy a new property in anticipation of selling their old one.

Sometimes it's the appraiser's mistake, sometimes a seller is stubborn with the asking price, sometimes the buyer is uneducated, and sometimes the agent is mistaken.

An appraisal is an opinion of value, so unless there are some compelling reasons, opinions are rarely changed. The reasons to change an appraisal can include using wrong comparable homes, using incorrect square footage because rooms in the home were not counted, or not using appropriate comps (i.e. short sales or foreclosures).

Most times, when the appraisal comes in lower than the sale price, the sale price can be renegotiated. But many times, the seller will not go any lower and buyers will walk from the deal.

Noelle Barbone, a manager at Weichert Realtors, states, "If the buyer is using conventional financing with a strong loan-to-value ratio he or she might be obliged to purchase regardless of appraised value, unless they have an appraisal condition added to their offer."

But if the buyer’s loan-to-value ratio is weak, according to Barbone, they may not be approved for the mortgage unless the sale price is adjusted to match the appraised value.

And once the appraisal doesn't match the price, walking away from a sale is not as simple as it sounds. Canceling a contract can result in the buyer's losing some or all of the deposit.

If a buyer is financing under FHA and VA, she said, "the sales agreement has a built-in appraisal condition giving the buyer the option to walk away with their deposit money intact."

Both sides in a VA or FHA transaction must sign the Disclosures Amendatory Clause; "It is not optional."

Whenever possible, Realtors, appraisers, and mortgage lenders strongly recommend renegotiating the sales agreement.

The best away to avoid such issues, of course, is to try to anticipate them. Agents should gather comps to determine an accurate sales price before an agreement is made or before a property is listed.