Major Appraisal Challenges to Getting a Residential Home Loan

English: An icon from the Crystal icon theme. ...

English: An icon from the Crystal icon theme. Nederlands: Een icoontje van het Crystal icon thema (Photo credit: Wikipedia)

As a real estate agent, I constantly hear the phrase that ”the property did not appraise”.  What does that mean?  If you are buying a home, you are probably going to get a loan to purchase the property.  Lenders will loan on the lesser of the appraised value or purchase price.  Ideally, your home appraises for at least the amount of your loan, needs no repairs and closes without any unnecessary delays.  However, there could be some potential bumps in the road to purchasing your new home.  If repairs are necessary or if your home doesn’t appraise for at least the purchase price, you have some decisions to make. If your home doesn’t appraise for at least the purchase price, a buyer will have several options:

  1. A buyer can ask seller to lower the purchase price. A buyer lets the seller know the appraisal value came in below the contract price and asks the seller to lower the contract price to equal the appraisal value.
  2. A buyer could walk away from the deal.  Sometimes the difference between the contract price and appraised value are so great that the buyer and seller can not agree that a buyer should just walk away from the deal.  Although the buyer would be out the cost of the appraisal, the buyer will get there earnest money back since the contract is contingent on obtaining a loan.
  3. A buyer could make up the difference in cash.  If a buyer really wants the property, they can also choose to make up the difference between the appraisal value and the loan value in cash.

Both FHA and VA loans require certain items to be repaired as outlined in their respective guidelines.  The appraisal will contain a list of mandatory repairs and estimated repair costs.  The main factors that can stop or delay closing on a FHA loan by an appraiser is whether the property is on septic and well rather than public utilities, the remaining life of the roof, and exposed wiring.  For example, there is the additional cost and time to get a water test as well as estimating the cost to connect to public or community water/sewage disposal system.  If repairs are necessary, a buyer will have three options:

  1. A buyer can ask the seller to make the repairs.  If they are minor repairs, most sellers will make the corrections.  However, major repairs could require some negotiations.
  2. A buyer could walk away from the deal.  Sometimes the repair costs are so high that a buyer should just walk away from the deal.  Although the buyer would be out the cost of the appraisal, the buyer will get there earnest money back since the contract is contingent on obtaining a loan.
  3. A buyer could complete the repairs by themself.  Sellers may refuse to do any repairs, even though they know that loan will not be approved and a sale will be lost. In this situation, buyers sometimes volunteer to handle the repairs themselves. I would not suggest making repairs on property that you do not own.  What happens if the property does not close?

If you are interested in buying a new home or any other home (new or existing), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511) and I can help you find a new home in the Tampa Bay Area.  My email address is alanlane66@gmail.com or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for homes on my website at this link.

Advertisements

One thought on “Major Appraisal Challenges to Getting a Residential Home Loan

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s