Appraised value vs Market value (condo)

[sa226]

Looking for some additional opinions and viewpoints.

I'm in a situation where the lender appraised value of a property i'm interested in came in about 5% less than the accepted offer price. So all else being equal I would need to come up with that extra cash to make up the difference in what the bank is willing to finance.

Are these situations common? If I were to come up with the extra cash, isn't that "fake equity?" Its not even contributing to the principle.

This purchase is more value\short term oriented than it is emotionally. Stuff like this is lowering my comfort level.

[albertGQ]

It's not common but also not rare. You would have to come up with the difference and the LTV is based on the lower number between the purchase price and the appraised value.

[bizaro86]

Originally Posted by sa226

Looking for some additional opinions and viewpoints.

I'm in a situation where the lender appraised value of a property i'm interested in came in about 5% less than the accepted offer price. So all else being equal I would need to come up with that extra cash to make up the difference in what the bank is willing to finance.

Are these situations common? If I were to come up with the extra cash, isn't that "fake equity?" Its not even contributing to the principle.

This purchase is more value\short term oriented than it is emotionally. Stuff like this is lowering my comfort level.

This happened to me on my house, we put up the extra money. It does contribute to the principal, since your mortgage will be lower than it would have been otherwise. I would take it as an opportunity to re-evaluate. When it happened to me I was confident the house was worth what I paid, and that the appraiser was wrong.

Also, you may have the option of getting another appraisal done, or going with a different bank who would want their own appraisal. If your banker/mortgage person pushes back on another appraisal, tell them you're not doing the deal with them otherwise. Then follow through and get different financing if they don't bend. Of course, the new appraisal could come in the same or lower, depends how confident you are in your valuation.

[sa226]

That's true regarding the principle.

My concern is the value of this purchase. Its going to probably more short term. The reason the appraisal came back like it did is the lack of comparables. I don't a different appraisal will change anything.

I'm just trying to make the right financial decision. I don't have that cash laying around. Most of it went to the down payment.

[AC]

Originally Posted by sa226

That's true regarding the principle.

My concern is the value of this purchase. Its going to probably more short term. The reason the appraisal came back like it did is the lack of comparables. I don't (think) a different appraisal will change anything.

I'm just trying to make the right financial decision. I don't have that cash laying around. Most of it went to the down payment.

Speaking as a residential appraiser, I would say a different appraiser might potentially result in a better value. If you'd like, you could PM me and I could do an unofficial and cursory valuation to see if its worth pursuing another appraisal.

[Deegee]

I don't know who you're working with, but as a manager of a Credit Union I can tell you I have asked Genworth what kind of appraisal they have done - drive and view or a full appraisal this year because they told me the appraisal did not support the values in our application to them. It turned out a full appraisal wasn't done. I pushed for a full appraisal to be done as I felt Genworth was wrong and the value came back acceptable with a full appraisal report and we were able to do the deal as originally presented.

I would suggest speaking with your lender to see if it was a full appraisal or not.

EDIT: This might not address your situation, but thought it might be good value to have added to the conversation.

[AC]

Originally Posted by Deegee

I don't know who you're working with, but as a manager of a Credit Union I can tell you I have asked Genworth what kind of appraisal they have done - drive and view or a full appraisal this year because they told me the appraisal did not support the values in our application to them. It turned out a full appraisal wasn't done. I pushed for a full appraisal to be done as I felt Genworth was wrong and the value came back acceptable with a full appraisal report and we were able to do the deal as originally presented.

I would suggest speaking with your lender to see if it was a full appraisal or not.

EDIT: This might not address your situation, but thought it might be good value to have added to the conversation.

Yup, I've had a few appraisals to write where they first order a drive by, and the value is impossible to meet the estimate because there simply isn't evidence for features or an effective age that would support that value. Then after being sent for a full appraisal to the same property it becomes possible to justify a higher value using the new data available.

[afc wimbledon]

I'd take the appraisal back to the vendor and ask them to eat it.

[sa226]

Originally Posted by bizaro86

This happened to me on my house, we put up the extra money. It does contribute to the principal, since your mortgage will be lower than it would have been otherwise. I would take it as an opportunity to re-evaluate. When it happened to me I was confident the house was worth what I paid, and that the appraiser was wrong.

Also, you may have the option of getting another appraisal done, or going with a different bank who would want their own appraisal. If your banker/mortgage person pushes back on another appraisal, tell them you're not doing the deal with them otherwise. Then follow through and get different financing if they don't bend. Of course, the new appraisal could come in the same or lower, depends how confident you are in your valuation.

Thanks everybody. I'm kinda leaning towards the opposite of the bolded. My gut feeling is that we may have overpaid a tad, but because we were in uncharted territory regarding the valuation the agreed upon price was acceptable to us. I kind of think the value is more in line with what the appraiser thinks.

My realtor used to be an appraiser, this is kinda his thinking as well. I think it'll come down to who is more motivated to get it done. I for one know that I don't just have a wad of that much cash laying around.

[ranchlandsselling]

Originally Posted by sa226

Thanks everybody. I'm kinda leaning towards the opposite of the bolded. My gut feeling is that we may have overpaid a tad, but because we were in uncharted territory regarding the valuation the agreed upon price was acceptable to us. I kind of think the value is more in line with what the appraiser thinks.

My realtor used to be an appraiser, this is kinda his thinking as well. I think it'll come down to who is more motivated to get it done. I for one know that I don't just have a wad of that much cash laying around.

Surely you had a financing condition?
If so you should be able to walk as the financing condition would have been based on deposit and mortgage resulting in a specific LTV.

[troutman]

Originally Posted by afc wimbledon

I'd take the appraisal back to the vendor and ask them to eat it.

Not in this market.

I've seen a few deals fall apart this summer, and the vendors always got a better price from the next buyer. And they kept the deposit from the first buyer.

Vendors got the power.

[sa226]

Originally Posted by ranchlandsselling

Surely you had a financing condition?
If so you should be able to walk as the financing condition would have been based on deposit and mortgage resulting in a specific LTV.

Originally Posted by troutman

Not in this market.

I've seen a few deals fall apart this summer, and the vendors always got a better price from the next buyer. And they kept the deposit from the first buyer.

Vendors got the power.

Oh yes. There is a financing condition. The vendor did what I expected, refused to budge. It is probably the most logical thing for them to. With my ultra conservative approach to this property purchase i'm not liking how this is going, so i'm probably going to walk.

[afc wimbledon]

Originally Posted by troutman

Not in this market.

I've seen a few deals fall apart this summer, and the vendors always got a better price from the next buyer. And they kept the deposit from the first buyer.

Vendors got the power.

Who ever is prepared to walk always has the power!!

[Smartcar]

AACI = Appraise According to Client's Instructions
There's always a range of values, and the lender's appraiser will always be on the low end.