When a lender is involved in a real estate transaction, they may require an appraisal of the home being purchased be conducted in order to ensure that the home is not valued at less than the amount they are putting up as collateral to purchase it. An appraiser might come to the home and compare the purchase price to other, similar homes in the area that have recently been bought or sold. If the home appraises for the price negotiated in the contract or more, then the lender is more likely to provide the loan. If, however, the property does not appraise for the purchase price, the lender is unlikely to issue a mortgage commitment and the transaction may be cancelled.
The lender’s decision as to the value of the home may be appealed. The realtors can provide the appraiser with comparable sales in the area in hopes of swaying the appraiser’s decision. If the appraiser’s approximation of the home’s value remains unchanged, then one of four courses of action must be taken.
1) The Seller must agree to reduce the purchase price to meet the appraisal price.
2) The Buyer must agree to increase the down payment to a level that makes the lender comfortable issuing the loan at the value listed.
3) A combination of options 1 and 2.
4) If no compromise can be reached, the transaction will be terminated.
This is often the last hurdle to overcome before the mortgage commitment is issued. A good attorney can help renegotiate the purchase price and keep his or her clients informed of their rights throughout the process. At Petriello Law, we have years of experience working on real estate transactions of all types and we are well equipped to help with any issues that may arise.