Dealing with a Low Appraisal

by Steve Meyers

April 26th, 2017

In this period of escalating prices in the Seattle Area along with the low number of transactions, appraisers are sometimes finding it difficult to locate comparable sales to substantiate the escalated price, as a true market value for the lenders.  When an appraisal comes back that is lower than the agreed purchase price the buyer and seller have 4 options.  First, the buyer can pay for a second appraisal that, if it comes in at the purchase price, the lender must agree to accept as the best appraisal (this very rarely happens).  Second, the seller can reduce the purchase price to the appraised value.  Third, the seller and buyer can agree on a price above the appraised value but below the original purchase price and, the buyer brings in the additional cash.  Forth, the seller rejects the appraisal and the buyer must then bring in the additional cash between the appraised value and the agreed purchase price.  If the buyer and seller cannot agree, the buyer can terminate the transaction and receive the Earnest Money back.

One tactic that buyers are currently employing in this market is to submit a Form 22AD with their Offer to Purchase that states the buyer will agree to pay a specific dollar amount above the appraised value, if it comes in below the agreed purchase price.  An example would be the buyer submits a Form 22AD which states they will pay $25,000 above the appraised value, up to the agreed upon purchase price.  This is a win-win for the seller because if the appraised value comes in below the purchase price, the seller knows the buyer will pay $25,000 above the appraised value.  It may still be below the original purchase price but, it locks the buyer into a specific dollar amount.

This may seem like a small matter but, it’s causing a lot of sellers to accept Offers to Purchase with this agreement attached.  I would encourage agents and buyers to utilize this Form 22AD to strengthen their Offers.  Buyers should confirm with their agent and lender they have the additional cash on hand to close the transaction.

If you have any comments or questions about this article, please email me at smeyers@kw.com.

Steve Meyers is a Managing Broker at Keller Williams Real Estate in Seattle, Washington.  He can be reached at (206) 972-3328 or smeyers@kw.com.

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