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Seller's rights when appraisal comes in low

I have a contract on my house, but the appraisal came in lower than expected and now the buyers want to sign a mutual release to purchase another house.  What is my right as the seller, are they obligated to purchase my house if I refuse to sign the release?
  • October 16 2013 - US
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Answers (16)

@ call the sisters

I am an fha appraiser and after 120 days we have to do an appraisal update and generally they ask for a new one. So not sure but that is what goes on in my world...  Maybe it is up to them to decide to get an `1004D update or a new one??? I know my area gets a new one after 120 days.
  • October 17 2013
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Profile picture for j3350489
Rebecca Said it well .You may as well release the earnest.  The house isn't appraising, they aren't coming in with the extra cash (cant' blame them, can you?) and the money will just sit in escrow.

I would lower the price to match the appraisal and move on either with this buyer or a new one.

I just went through this last week . Appraisal came in 8k lower than contract price and sellers came down in price . Or wait for a cash buyer .
  • October 17 2013
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Profile picture for SoCal Engr
Since there seems to be some disagreement...

FHA FAQ site on Do FHA Appraisals Expire?

When in doubt, I prefer to see a link-to-the-source. I've been burned too often by "Fred's sister-in-law's cousin said..."
  • October 17 2013
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Profile picture for CallTheSisters
Debbie:

I just verified for another property that came in low, and the underwriter told my mortgage broker it was 6 months.
  • October 17 2013
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Profile picture for Rebecca Marvel
I agree with Lori but please do not expect the appraiser to automatically use your suggested comps.
  • October 17 2013
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Have you looked at the comparable homes the appraiser used. If you can provide the appraiser with comparable home sales that sold higher then the homes he used in his appraisal he will adjust the appraisal accordingly. If not the only thing to do is adjust the sales price to reflect the appraised price or to release the buyer from the contract. The purchasers are not obligated to purchase a home if the home doesn't appraise for the sales price. 
  • October 17 2013
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Profile picture for Rebecca Marvel
You may as well release the earnest.  The house isn't appraising, they aren't coming in with the extra cash (cant' blame them, can you?) and the money will just sit in escrow.

I would lower the price to match the appraisal and move on either with this buyer or a new one.
  • October 17 2013
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@ Call the Sisters
The FHA appraisal validity period is 120 days for existing, proposed or under construction properties. If the HOC determines that soft market conditions exist in certain areas or markets, it may shorten the term of appraisals for substantial rehabilitation upon advance notice to lenders.
The term of the appraisal begins on the day the home is inspected by the FHA appraiser and this date appears on the appraisal report.
If a sales contract is signed or the borrower is approved for a loan prior to the appraisal expiration date, the appraisal term may be extended by the lender for 30 days to allow for loan closing.
Approval occurs when the lender DE underwriter signs the FHA Loan Underwriting Transmittal Summary, Form HUD-92900-LT. The loan must close within 150 days (120 day validity period for original report plus 30 day extension), if the appraisal has not been updated with an Appraisal Update Report (Fannie Mae 1004D/Freddie Mac 442) as set forth in Handbook 4155.2.
If the appraisal has been updated via an Appraisal Update Report, the loan must close within 240 days (120 day validity period plus 120 day validity period for the Appraisal Update Report). The appraiser must include a Market Conditions Addendum (Fannie Mae Form 1004MC/Freddie Mac Form 71) reflecting market conditions as of the effective date of the Appraisal Update Report.
The appraisal may only be updated one time via the Appraisal Update Report and may not be used by a lender who is not the intended user in the original appraisal report unless the appraiser incorporates the original report by attachment rather than by reference per Advisory Opinion 3 of the USPAP. The 30 day extension is not allowed when the appraisal is updated with an Appraisal Update Report.

Per HUD Handbook 4155.2. 4.4.d
  • October 17 2013
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Profile picture for CallTheSisters
User5917557
You have received several responses. 

Every right, term and condition has to be spelled out in the contract.  The contract is the road map and drives the transaction from point A to point B.

Any action you take that is adverse to the buyer, and not expressly permitted by contract could cost you in a court of law way more than the escrow being held.

Take your contract to a real estate attorney and get an opinion. 
  • October 17 2013
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Profile picture for CallTheSisters
Debbie:

FHA appraisal STICKS a minimum of 6 months.


  • October 17 2013
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Depending on several things. If the loan is an fha, they will not get the loan if it didn't appraise for purchase price.You will have to renegotiate or cancel the deal. That appraisl will however stick with the property for 120 days.
 If it is conventional financing and there is no stipulation in the contract that they can withdraw if the appraisal comes in low, you may be able to keep the deal alive.
I would consult with your Realtor on what terms were in the contract and the buyers financing.
Hope this helps.

Debbie
  • October 16 2013
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Yeah. Boy.

Well, here's the deal. Your rights are spelled out in your contract. That's it, beginning, middle, and end of story. And, let's face it - if they can't get the loan, they can't buy your house.

I'm not going to suggest that you lower your price; I don't know anything about your property or the market conditions, and I don't know how much money we're talking about here, either. But you should realize that an appraisal is just one person's opinion of what the collateral is worth the to lender, and it may be different from what a willing buyer is willing and able to pay. This buyer, probably not able! 

I'd confer with my agent and look over the comps before deciding on a plan of action. Maybe there's a mid-point where they'd be willing to put up a little bit more down payment to make the deal work.

All the best,
  • October 16 2013
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Profile picture for Ofe Polack
Your listing agent should be able to advise you on this issue.  If your contract has a financial contingency, read it and see what it says.  Have you thought of lowering the sale of property to the appraised value?  If the sale was FHA, beware of re-listing, the appraisal is good for 6 months.
  • October 16 2013
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Profile picture for wetdawgs
Was there an appraisal contingency in the purchase contract that you accepted?  A financing contingency?  Have you proposed meeting them at the appraised price?  

"Are they obligated to purchase my house if I refuse to sign the release?" 
I suspect at worst they'd have to give up the earnest money but we don't know your contract.  

  • October 16 2013
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Profile picture for CallTheSisters
Your Realtor should be advising you at this point of the contract.  What does your Realtor say about the comps that were used?  Do you have a Realtor?

What does your contract say about an appraisal contingency?  That is a very important detail.  We do not know if you can hold them to the contract.  Highly doubtful.

If there is no appraisal contingency there may be a mortgage contingency.  The mortgage contingency protects them from paying more than appraised price because the mortgage will be denied based on loan to value.

You have not given us enough information to know how to advise  you.

If the loan the buyer was trying to get was FHA that appraisal will stick for 6 months to a year to your property.  Waiting for another buyer to come along is not necessarily an option.

As far as what you could do - if your agent reviewed the appraisal and disagreed with the comps it could be challenged. That said - it is rare that it is successful unless a blatant error was made.

Your best option is to reduce to the appraised value.  You are risking that another appraisal could be lower.
  • October 16 2013
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What does your REALTOR say? What does your CONTRACT say?  Most contracts have an appraisal condition that lets the buyer out of the contract if it doesn't appraise for the purchase price.  Besides -- the LENDER won't approve their loan, if it doesn't appraise for the amount they are lending on! 
I would sign it and move on. And drop your price.
  • October 16 2013
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