Appraisal Problems…..

The Seatttle Times Friday the 13th Real Estate section Q & A by Elizabeth Rhodes sites a low appraisal problem on a condo sale. While the explanations offered are fairly brain dead with respect to what actually happens in such a situation, it inspired me to write about 2 recent transactions wherein the appraisals played pivotal roles unlike that which I’ve seen in 20+ years.

I say brain dead because there is no empathy for the seller in Rhodes response. She does not understand the shock, anguish, and inconvenience that such an occurrance may have on both the seller and the buyer. There is no suggestion as to what may be done to remedy such a situation, whether there is any legal recourse for a seller.

The Northwest Multiple Listing Service members use a Finance Contingency form which addresses this situation:

“If Buyer’s lender’s appraisal of the Property is less than the Purchase Price, Buyer may, within 3 after receipt of a copy of lender’s appraisal, give notice of Buyer’s election to terminate this Agreement unless Seller, within 10 days after receipt of such notice, delivers to Buyer either:

(a) (i) if this Agreement is contingent on FHA financing, a reappraisal by the same appraiser, at Seller’s expense, in an amount not less than the Purchase Price or (ii) if this Agreement is contingent on non-FHA financing, reappraisal, at Seller’s expense, by the same appraiser or another appraiser acceptable to the lending institution in an amount not less than the Purchase Price; or

(b) Written consent to reduce the selling price to an amount not more than the amount specified in the appraisal or reappraisal, whichever is higher.”

In the case reviewed by Ms. Rhodes this form might have protected the Seller. In the cases that we recently faced, the process was more complicated:

In our first case the appraisal was equal to the Purchase Price, but the lender’s underwriter determined that the appraisal was “inadequate”. It was unclear to us and our Seller as to how to proceed under this circumstance, as the appraisal was the correct value. Appraently the Buyer’s Agent was even more confused as they never produced a legitimate, timely notice as to why the Buyer did not qualify, and thus did not close. This situation is now under review by the respective brokers as to who should receive the Buyer’s earnest money deposit.

Our second case involved our Buyer. While again the appraisal came in “at value”, the underwriter sited specific information in the appraisal that they deemed inadequate. On the side the loan representative told our Buyer that if they “made a larger down payment there wouldn’t be an issue with the appraisal”. It is disheartening that this is the way lenders operate. One would think that the appraisal would stand alone, representing the value of the property, regardless of what the buyer’s down payment is, or what their credit score is. Mortgage lending is a murky business at times. Nonetheless, we were able to provide the additional information that the underwriting sought, and the loan closed, thank goodness. But not with a good deal of unecessary stress.