Profile picture for AnotherYear

Buying a home when appraisal is low, in California

There seems to be some confusion by the parties on how the verbiage in the counter offer is understood, so I would like opinions as to how other professionals (other than just my agent) would interpret it. Hopefully there is one consensus. :) All numbers are examples, not actuals. :)

COUNTER OFFER reads...
1. Home price shall be $200,000
2. In the event that the appraisal arrives at a value less than the agreed upon purchase price, buyer herby agrees to pay the difference, up to $5000.

Does this mean that if the house is only appraised for $170,000, I get to automatically buy it for $175K, or does it mean I agree to pay $175K ($170K + $5K over appraisal value) and the seller then decides to accept or not?
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December 09 2013 - US
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Answers (9)

Profile picture for gator70
The seller is worried about the appraiser. From a sellers point of view, they may not want to sell at all if the value is too low. Walk away if the deal is not what you want.
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December 12 2013
Profile picture for AnotherYear
Thanks Rebecca for the reply.
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December 11 2013
I would have to read the contract/counter for myself to effectively answer - it appears it's up for interpretation since others are interpreting it differently than I
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December 11 2013
Profile picture for AnotherYear
Thanks for that Vince, what you, Tim, and Wetdawgs state makes perfect sense. I was hoping  Rebecca would elaborate on her answer since she seems to disagree, and that does not make sense to me. Just wanted to understand the viewpoint. Thanks all!
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December 11 2013
I read it as Tim Moore states, because up to a 3% sales concession is typically the max a lender will allow, ... 3% of $200K is $6K...If this is the case, the purchase price will still be $200K, the seller will simply credit you $5K as a 'non-recurring closing cost'.

Also, if the verbiage reads as final price being $5K over appraisal, why would an appraisal of $200K not make the purchase price $205K?

Purchase price is what the buyer and seller agree to. An appraisal is ONLY for a lender purpose - period. The bank HIRES the appraiser, you dont. The bank wants to know if it is (approx) worth the purchase price. Don't put the cart before the horse. The appraiser, and appraisal, are not party to the contract. The agents and contract, though, can make contingencies based on the appraisal IF THEY CHOOSE, but the value is what the appraiser comes up with FOR LENDING PURPOSES. The appraisers bases the values on lender criteria, which sometimes differs between lenders.

Get super clear on this with your agent, and if the agent is a dufus ask to get clarity from their broker, and if necessary an attorney. But youll find out soon enough I imagine...

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December 09 2013
Profile picture for AnotherYear
Thank you for the answers thus far. Rebecca, if the answer is as you propose, does that not effectively mean that both parties would've entered blindly into the contract, neither knowing the final purchase price? Wouldn't any new price have to be finalized with an amended contract agreed to by both parties? How would escrow account for the difference if not?

Also, if the verbiage reads as final price being $5K over appraisal, why would an appraisal of $200K not make the purchase price $205K?
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December 09 2013
I read that as the appraisal must come in for $200,000 to move forward and if it comes in for $195,000 or above to the $200,000 you will pay up to $5,000 to offset the lower appraisal.

$195,000  you pay additional $5k
$198,000  you pay additional $2k


If it comes in at $170,000 your $5,000 contribution will not allow the loan to proceed and all stops.


tim
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December 09 2013
It appears that yes, it means just what you are interpreting it to mean.  You're in it for an extra $5k if the house appraises for less than the agreed to purchase price of $200k.

If it appraises ABOVE the $200k you're not liable to pay over the agreed to $200k.

I'm reading your summary as the same thing - if house appraises at $170k you get to pay $175k but your lender will ONLY LEND YOU $170k so I hope you have $5k liquid.
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December 09 2013
Profile picture for wetdawgs
"does it mean I agree to pay $175K ($170K + $5K over appraisal value) and the seller then decides to accept or not?"   In your scenario, this is the correct choice.  In other words, you don't suddenly get a reduction of more than 10% from your offer price without the seller agreeing.    What did your agent say?

Hopefully your appraisal is not so far from your purchase offer price. 
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December 09 2013
 
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