Appraisal In Mortgage Process
An appraisal is mandatory during the mortgage process. There are conventional appraisals and FHA appraisals. FHA appraisals are slightly more detailed than conventional appraisals and costs a little more than conventional appraisals. FHA appraisals really stress on safety and security of the subject property. For example, loose wiring, broken glass in windows/doors, peeling paint, and non functioning electrical, HVAC, and plumbing issues can be a problem. If the FHA appraisal notes defective items on the FHA appraisal, it does not mean that the home buyer cannot purchase the property. The sellers can correct the issue noted by the FHA appraisal and a appraisal re-inspection needs to be done. There is normally a cost involved with an appraisal re-inspection and is normally around $100.00. Conventional appraisals can have issues also. If there are major maintenance issues with the subject property or the property is not up to standards, the conventional appraisal will note it on the appraisal and the sellers need to correct the issue and an appraisal re-inspection needs to be done. The punch list requested by appraisers are normally minor and can easily be corrected by the sellers or sometimes the buyers with the sellers permission, however, if you get a low appraisal, it can be a problem. However, in cases of low appraisal on the subject property, most of the time it gets worked out between the buyers and the sellers of the subject property.
Solution For Low Appraisal Issues: Lower Sales Price
In cases where the appraisal comes in a few thousand short and the seller is in a hurry to sell and close the deal, the seller normally lowers the sales price to the appraised value of the property. An addendum to the original contract needs to be completed with the new lowered purchase price and submitted to the mortgage lender. However, if the sellers do not feel that the appraisal is justified and the home buyers still want the house, an appraisal rebuttal can be requested.
Appraisal rebuttals can be requested if the sellers really feel that the low appraisal has no merit and the home buyers still want to purchase the home at the original purchase contract price. Appraisal rebuttals are somewhat difficult and normally takes about a week’s time. The appraisal rebuttal form needs to be completed by the seller’s agent normally. The seller’s real estate agent should provide five comparables to the subject property and can make comments on why the low appraisal is not justified and that the appraiser should review the supporting comparables. Comparable properties cannot be listed properties that are not closed and cannot be properties that are more than a one mile square area. Comparable properties should be properties that have closed and recorded in the past six months. Properties that closed longer than six months can be listed but will have less weight. If the appraiser sees that the supporting comparables on the appraisal rebuttal form is justified, he or she may change the value of the low appraisal. Again, to get the value of the low appraisal changed to a higher value, it is not easy and supporting facts are required.
Other Solutions For Low Appraisal
Most home buyers get a sellers concession towards a buyers closing costs. FHA allows up to a 6% sellers concession towards a buyers closing costs and conventional loans require up to 3% sellers concessions towards a buyers closing costs. In cases of low appraisal on the subject purchase property, a compromise can be made with the home buyer giving up part or all of the sellers concession towards the buyers closing costs. For example, if a home buyer has a real estate purchase contract on a property for $106,000 with a $6,000 sellers concession towards a buyers closing cost and got a low appraisal of $100,000, the home buyer can give up the $6,000 closing costs sellers concession and still go ahead with the purchase transaction and purchase the property at $100,000. The home buyers will be responsible to cough up the closing costs. If the home buyers do not have enough money for the closing costs, they can request a lender’s credit towards closing costs. Mortgage lenders can give mortgage loan borrowers closing costs concessions by charging the mortgage loan borrower a slightly higher mortgage rate. On the same case scenario, the home buyer can still purchase the subject property at the $106,000 original purchase price but the mortgage lender will base the aquisition cost at $100,000 and base the mortgage loan on the low appraisal value of $100,000. The home buyer needs to come up with the additional $6,00