Real Property Appraisals/Appraisal Issue

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Question
Good Morning,

Since Real Estate laws vary state-to-state, I will start by saying I live in Michigan.

I recently put my mother's 1920's Craftsman house, which I inherited, on the market.  A buyer made an offer, and we settled on $125,000, with me contributing 3.5% toward her closing costs.  We are set to close in April.

Though the house is small (1,600 sq. ft.), it has had multiple upgrades and is in fantastic structural condition---truly "move in ready", and filled with features---central air, huge working fireplace, 3-seasons room, large backyard with deck, etc. that many "comparables" do not have.

I was told that the buyer had a 20% downpayment, which as I understand it means that she would be applying for a $100,000 loan.  The house was appraised Monday, and the appraisal figure came in at $119,000, probably due to the fact that there was recently a short sell on a very nice comparable a couple of blocks away (that house had been on and off the market for FIVE years....at one point the owners turned down an offer of $150,000...I think it eventually sold for around $120,000).

My Realtor came back to me and said we had a problem----the bank would not lend the buyer $125,000 if the house appraised at $119,000.  I pointed out that the buyer had a 20% downpayment, and therefore only needed to borrow $100,000.  Unfortunately, no matter how many times I tried explaining this to her, she just kept insisting that the bank would not lend more than the house appraised for.  My suspicion is that the buyer is actually applying for the full $125,000, and has plans to use the extra for a car or a vacation or whatever, but I don't know this for sure.   I also don't know if my Realtor has the ability to find out the amount of the loan being requested.

So my question is this:  am I correct in my assumption that the bank cannot tell me that I am prevented from selling my house for $125,00, even with a $119,000 appraisal, as long as the amount of the buyer's loan does not exceed the appraisal?  In other words, as long as the buyer is borrowing less than $119,000, isn't my selling price acceptable as is?

Since I can't seem to get a straight answer from my Realtor, I am hopeful I can get one from you.  

Thank you for your time and expertise.

Terry

Answer

Terry,

You are in a quandary, aren't you? From my side of the fence, there is only a moderate difference between $119,000 appraisal value and $125,000, the original agreed upon sale price. Have you explored reducing your sales price to $119,000? Would that be acceptable to you to get this house sold, taking $6,000 less?

You need to look at the Purchase Contract which you signed. Does the Contract say the sales price is $125,000, the down payment is $25,000, and the loan amount is $100,000? If so, I am also perplexed why the Agent is saying the buyer "can't get a loan for $125,000". If the contract says that the loan is $100,000 - that is the loan amount. Of course, the Bank would not lend $125,000, that wasn't the loan amount to which was agreed on the Contract.

Getting back to the difference between the appraised value and the sales price. If you can accept the "new" sales price of $119,000 and the buyer puts 20% down on this amount, that means the buyer has to qualify for a $95,200 loan.

You are correct that the Bank cannot tell you you can't sell for $125,000. It's just that if you stay with that sales price, the buyer either has to make an additional $6,000 down payment, or qualify for for a higher loan amount.

If your Agent keeps harping on a loan amount of $125,000, something does appear to be fishy and it seems that the Buyer is attempting to get a loan of that amount. Again, you need to go back to the Contract and see what was stated on this document.

I hope that you can get everything straightened out to your satisfaction.

John C. Carlson
CA Certified General Real Estate Appraiser
Victorville and Diamond Bar, CA
www.jccrea.com

Real Property Appraisals

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John C. Carlson

Expertise

Any questions regarding commercial and/or residential appraising, appraisals or real estate valuation such as: appraising as a profession, valuation techniques, comparable sales selection & analysis, the new HVCC and how it affects appraisers & Borrowers. Also, questions like: "Why did my appraisal come in low & what can I do about it?" I cannot answer questions about comparable data in areas in which I do not practice. I have expertise in most areas of So. California.

Experience

31-years both commercial and residential valuation experience. State of CA Certified General Real Estate Appraiser, licensed to appraise all property types. FHA Approved. Specialized expertise with historic, architectural & luxury residential property valuation. Experienced in industrial building and small commercial property valuation. Experienced Reviewer of appraisal reports and expertise with intensive forensic reviews to uncover fraudulent appraisal reports. Expert Litigation and Expert Witness experience.

Organizations
Associate Member of the Appraisal Institute. Associate Member of the Certified Fraud Examiners.

Publications
Numerous posts to Blogs. Please "Google" "John C. Carlson Real Estate Appraisals" where a list of responses I have made will show up.

Education/Credentials
Numerous classes by the Appraisal Institute since 1978 in the practice areas in which I specialize

Past/Present Clients
First Republic Bank Wells Fargo Bank California Bank & Trust Preferred Bank Numerous Attorneys.

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