Should I proceed with buying a home if the appraisal is lower than the purchase price, requiring additional funds at closing?

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  • #95422 Reply

      I’m in need of some house buying advice…

      I am building a home & in the final stages & approaching close. The house was appraised lower than the purchase price (267,000 vs. 264,000). As part my purchase agreement, it does state that if it is appraised lower, I have a couple of options:

      • Pull out of the agreement & get my earnest fee back
      • Bring the difference to closing on top of applicable closing costs
      • Keep the Agreement in place, seek reconsideration of the Appraisal with the Lender, or seek alternative financing with another lender & seek a different appraisal.
      • The seller/builder can lower the purchase price to the appraised value

      The developers have agreed to meet In the middle & go with option #2 & bring half of the difference while I bring the other (1500).

      My two concerns with this is that I’m basically having to bring about 4000 more to close given my loan type parameters (FHA) & the option above. Also, I’m hesitant the value of the house will depreciate even more after close if the appraisal can back this way. The developers are also refusing to drop the price of the house to the appraised value or cover the full difference.

      All-in-all, I want to make sure this is a financially sound investment given its my first home. Any thoughts on how to navigate?

      #95423 Reply

        The difference in price is only a bit more than 1% difference. If the builder is meeting you halfway meaning $1500, how does that require another $4000? I certainly wouldn’t walk away over that amount. Are there other circumstances not mentioned that might sway you to walk away?

        #95424 Reply

          That is such a small difference that 5, 10, and 15 years from now you won’t even see the impact of paying the extra funds.

          Historically, like with stocks, real estate appreciates. You’ll probably make up that value quickly.

          With the enormous demand for housing, this property is probably at its lowest value right now.

          #95425 Reply

            I wouldn’t walk on that small of a difference and it’s likely that your higher purchase price will swing valies in the neighborhood up (the appraised value is derived from recent sales of comparable properties plus adjustments).

            #95426 Reply

              I’ve seen plenty of buyers cover the difference in the appraisal of a new build. Many much larger than yours.

              #95427 Reply

                It’s FHA so option 3 is out completely. $1500 is not a bad gap at all. I’m assuming you’re planning on living there for quite a while. I’d just eat the cost and it should appreciate over time.

                #95428 Reply

                  It’s not worth the hassle to walk away. If you like the house, ask your agent what their advice is. Often, they will split a little something with the selling agent to make the deal happen, so you don’t have to come up with the cash, if that’s a walkway issue for you.

                  I will say, if you need to walk away for that price difference, you probably shouldn’t be buying a house.

                  #95429 Reply

                    That’s a really small difference in the scheme of things. Maybe it’s just because where I live it’s pretty much impossible to buy anything, but I wouldn’t walk away from a home over $1500.

                    I’d be surprised if over time it didn’t increase in value by more than that.

                    #95430 Reply

                      Really depends on the market in your area. Houses in my area go fast and often sell above appraised value. Values are always increasing so here, it would be worth the extra 4k to get the house you want.

                      #95431 Reply

                        I think these numbers are very small potatoes. An appraisal is just one person’s (educated) opinion of value, designed to protect the banks interest.

                        I wouldn’t put too much weight on it.

                        I’d be happy that the builder is meeting halfway and would take that.

                        #95432 Reply

                          I like the angle to see if builder or really anyone else would pay for the amount as their money is always better than your money, to you. But outside of that, ehhh it is $3k and the value of a house will fluctuate by thwt or more each year, even if you don’t know it or recognize it. Same with 401k and ira and brokerage account investments.

                          So try a little to get the $3k covered by someone else but they quickly shift to ehh and move on.

                          #95433 Reply

                            Most new developments will increase in value about 2-5 yrs after as neighborhood builds and parks and schools are added. Look at lake Elsinore numbers to see what I mean. Yr 260k today can be 400 in a few yrs. I wouldn’t back out over 4k.

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