House has appraised to low for a loan?

Question

I am under contract to have a new home constructed by a builder. The bank has just appraised the land and new home construction project too low to be willing to give the loan. This despite stellar credit, no debt, and a 20% down payment. The builder has agreed to pay for a second appraisal. What should I look for to ensure that the builder did NOT shop for a builder friendly appraisal rather than an honest, independent one? In other words, what should I look out for? Any advice?

I am concerned about the appraised value being too low. And would like to renegotiate the price, if that is possible or break the agreement altogether.

Answer 1

I recommend that you select an appraiser who is a Member of The Appraisal Institute.

That is the only organization that I have found that has sufficient training and experience requirements to produce a competent appraiser. Mere licensing is not good enough.

I recommend that you hire your own appriaser and the builder may hire his own appraiser if he chooses.

Make certain that your appraiser understands that he is to represent your interests and protect you from payiing more than fair market value for the property.

Remember that you can always order your own appraisal in addition to any appraisals performed by the lender or the seller.

You need your own appraiser to protect your interests, even if the lender insists on another appraiser to determine whether they will make a loan on the property.

In my experience I have never seen a lender refuse to use an appraiser who is a Member of The Appraisal Institute.

Lenders know the Appraisal Institute well. The Appraisal Institute is well known among lenders and is generally regarded as an indication of honesty and competence if the appraiser is a member of that organization.

Answer 2

This is common right now. The seller can not order the new appraisal, but he can pay for one that the lender has ordered. The lender will order the appraisal from someone on their approved list. If it does not appraise high enough, you should be able to get back any earnet money or deposits from the seller. A lot of times with new construction, the builders start giving HUGE discounts on houses to sell the rest of a subdivision that's filling too slow. Those lower priced sales bring down the value of any similar homes within at least a 1-5 mile radius. If appraisal #2 comes in low, I would ask the seller to lower the price or i would walk. Good Luck.

Answer 3

Your stellar credit, lack of debt and down payment have little to do with this situation.

You want to buy a house that costs $100,000. You're going to make an initial investment of $20,000, and borrow the remaining $80000 from me.

My unbiased appraiser tells me the house isn't worth the $100,000. That changes the parameters of the loan.

I, the lender, am not going to accept the value an appraiser chosen by someone else establishes for the house. I don't know his level of interest in the property. I will always choose my own appraiser.

So now you can ask for comparable sales to support the original sales price, if you still think the house is worth $100000, or you can negotiate the price with the seller. Even if the builder is willing to pay for an additional appraisal, few lenders will consider a different appraisal.

But if the builder can provide comps that support that sales price, the lender will give them to the original appraiser and he MIGHT change his mind. He MIGHT agree that these comps are more representative of the property. It's not very common for the appraiser to change his mind, but I have seen it happen.

Talk to your lender about the next step. There's no point in having a second appraisal if the lender won't accept it.

Answer 4

RUN ... RUN AWAY FAST!!! The low appraisal is your out of the contract such that you will get you good faith money back in full. The only reason to stick with the contract is if the builder will lower the price to the value of the first appraisal.

There is nothing to watch out for in the second appraisal because you can bet your entire fortune that the second appraisal will come within $100 of the sale price. There are red flags, and there are red flags, but a low appraisal on a new construction home is the biggest red flag there is!

Answer 5

Look, you can get an appraiser to say anything you want.
Honestly, if the first appraisal wasn't close to the asking price, you should be asking the builder to come down in price instead of fishing for someone who will tell you what you want to hear.
Why would you want to pay more for a house than it's worth? That makes no sense at all!

Answer 6

Unless you are absolutley in love with this home, and plan to stay there for a loooong time, run away now and fast! Now since you have a contract with the builder you may have to consult a lawyer to get out of it with as much of your deposit as possible.
We made the same mistake a few years ago.. the mortgage broker's appraisal was too low, but in a desperate attempt to get the home we went with the appraiser that the Realtor hired, and we have regretted it ever since. The only way we'll be able to get out of the home now is to either wait several years for the next housing boom, or default on the mortgage and live with that mark on our record for the next 10 years. It's a very frustrating situation that I wouldn't wish on anyone, and the only thing that keeps me optimistic is that we are still young enough that we'll still only be in our early-mid 40s by the time we can right our credit rating again.

Answer 7

you've an extremely problematical time proving that the vendor "paid somebody off to get this homestead to sell" or that any fraudulent went on. given which you financed this homestead, your lender employed an appraiser to insure the homestead replaced into nicely worth what you have been financing. i'm specific yet another lender bought your own loan, call your cutting-edge lender and notice if there is an appraisal interior the record. An appraisal is an opinion of fee, so your would be hinging your case on that the vendor paid the appraiser to inflate the linked fee. the burden of information would be on you. The demanding actuality right this is this: this is not "their lies" that have been given you into difficulty. because of the fact the customer, it replaced into as much as you to do your due diligence to make constructive this is a clever purchase. you probably did no longer have all of us yet your self representing your pastime, does not sound such as you're thoroughly recommended approximately RE to no longer have somebody representing you.

Answer 8

He will shop for a appraiser who will give a higher appraisal or why bother? The house isn't worth what it cost to build so you need more money or to have a clause saying if it doesn't appraise they lower the price.

Answer 9

I’m not sure that the buyer or seller has the right to choose an appraiser. If this appraisal is for the mortgage, I think you have to go with the lender’s choice of appraisers.