Post # 1
We are currently in escrow on a house which we’re very excited about. We originally offered much lower than asking price based on a comp of a similar house down the street recently selling for very low. (I went to that open house and saw that it was redone and updated so I was pretty surprised when it sold for so low.) The sellers countered to a little less than asking and we agreed because I had found on the MLS listing of that super low house that all the work was unpermitted and the exterior work was even flagged by the city and they have no documentation of the resolution. So I figured that that’s why it sold for so low, 6.5% lower than our contract price for our house.
But now I’m worried about that super low house price affecting our appraisal. If it doesn’t come close, then we’ll have to walk away from the deal because 6.5% is over a $60,000 difference where we are. Will the appraiser know that the super low house had unpermitted work and take that into consideration when looking at the comps? The house right next door to the one we’re buying recently sold for 1.5% less than our contract price so this makes me feel a little better. All three houses are similar size and have been similarily updated.
Also, how common is it for houses to appraise lower than contract price? I live in a HCOL area in Southern California if that makes a difference.
Post # 2
I wouldn’t panic. For one, the appraiser should consider why the house was sold for so low and either factor that in or not use it as a comp. And if not, you can point this out to the bank try to get a new appraisal.
And, if you are truly stuck with an appraisal that is less than your contract price, it isn’t the end of the world. You can go back to the sellers and ask to adjust the contract price to the apparaisal price. Most likely they’ll agree, they’ll want to close the deal, and besides, even if they get another buyer with a higher offer, that buyer will run into the same issue with the appraisal.
Post # 3
if you’re in a market where things are selling under
asking price then I think you’ll be fine if you have to go back to the sellers due to a low appraisal. The only times I’ve known of it being an issue are in bidding war situations. When we refinanced our house a few years ago my real estate agent sent me some comps she had recently sold and she did have one couple that needed to come up with the extra cash because the appraisal was low and there were 10 other buys in line behind her willing to do it instead.
eta: did you check the building jacket for your property to make sure all the work was permitted? Most real estate agents and inspectors won’t check that for you unless you’ve specifically talked to them about it. It’s usually a quick trip to the local building department.
Post # 4
I agree with sarusarunna :
The appraiser should be aware of this and will take it into consideration when finding comps. I wouldn’t panic either.