Thursday, July 21, 2016

What If Your Home Appraisal Is Too Low?

You have signed a contract to purchase a house. Your potential lender has qualified you for the mortgage loan, on the condition that the house will appraise high enough to support the loan. Now you have learned that the appraisal has come in too low, and the lender is not prepared to commit the loan.
You have a number of options.
Let's take this example.
Your contract price is $500,000, and you are seeking a loan which will be 80 percent of the purchase price -- or $400,000. Such a loan will help you avoid paying private mortgage insurance (PMI) premiums. However, the lender has appraised the house for only $480,000, and will only lend you $384,000.
Here are some of your options.

1. Cancel the deal. Read your sales contract carefully. Do you have a financing contingency, and do you still have time to terminate the contract if you cannot get the financing spelled out in the contract. If you have any questions about this, check it out with your attorney. Did you include a contingency for obtaining an acceptable appraisal? Read your contract carefully.

2. Put up more cash. You originally intended to put down $100,000 of your own money and get a $400,000 loan. Since the lender is only willing to lend you $384,000, you can -- if you have the cash and want to use it -- put up the additional $16,000 (or $116,000), and still buy the house. However, if the appraisal is truly accurate, give serious thought as to whether you may have overbid on the price. And don't forget to plug into your equation closing costs -- such as title insurance, recording taxes, title search, etc.

3. Change the terms of the loan. Obtain a first trust in the amount of $400,000, and a second trust in the amount of $16,000. This will help you avoid PMI. Talk with your lender about this; not all lenders like to use this approach.

4. Challenge the appraisal. You have the absolute right to obtain a copy of the appraisal. Read it carefully, and discuss it with your attorney and your real estate agent. You should then talk with the appraiser and/or the lender. If you believe there were errors in the appraisal, demand that the appraiser return to the property, and reevaluate the situation.
Keep in mind, however, that appraising property is not a science; at best, it is an attempt to determine what a piece of property is worth, based on a number of different methods of evaluation. While appraisers use such benchmarks as square footage, replacement value and other similar concepts, the bottom line in my opinion is that appraising a house is a very subjective exercise. Since no two houses are really similar, there has to be a lot of subjectivity involved in any assessment.
The best test of market value: what a buyer is willing to pay and a seller is willing to accept for the house.
Written by Benny L. Kass on Wednesday, 20 July 2016 3:04 pm 

302 N. Cleveland St.
Oceanside, CA. 92054
Serving Oceanside Communities Since 1979

With over 30 years experience in the Real Estate and Construction industry, I see this as one of the most overlooked areas for homeowners having a construction project done on their home. 

This could include new construction, a complete renovation or just a home improvement. During the construction, the time will come when the home owner will want to change something along the way. This could be what they think is a very small change to what is actually a very costly project. The change can be an added or modified part of the construction project - as in adding an island to the kitchen or not installing the hardwood floors that was stated in the original contract.

When making your change, always make sure that the change is explained to the Contractor "ONLY" and a "Change Order" listing the labor and materials needed for the change - along with the amount of time the change will take - is written up. The change order must then be signed and dated by the Home Owner and the Contractor before the work has been started, or certain projects not to be completed. 

Never let any contractor say "We'll work it out in the end" or "It won't be that expensive" or the famous "go ahead and do it - over the phone"! This could turn out to be a very expensive change at the completion of the project, if not done correctly.

Always check with your local Contractors State License Board, for the contractors Current License and Bond. You will also be able to see if the individual has any past or current issues.
Federico Filippi/Webmaster

302 N Cleveland St
Oceanside, CA. 92054