Short Sale & Low Appraisal Value?
What Happens When a Short Sale Property Gets Approved for More Than the Appraisal Value?
Most of the time when a potential home buyer submits a contract on an Orlando short sale, that person is expecting to get a fantastic deal on a home. Many times this is exactly what ends up happening. The lender approves your offer and you get the deal of a lifetime! However, depending on what happens with the appraisal, everything can still fall apart on you, so don’t celebrate just yet.
Appraisal values, when it comes to short sales, are a crucial part of the process. Let’s say for example, the short sale lender approves an offer of $150,000. The next step for the buyer is to get their financing lined up with their lender. All lenders require certain things to happen like an appraisal, home inspection, sometimes a survey, etc. However, if the house happens to appraise for lower than what the short sale bank is willing to accept, then this could end up being a deal killer because the buyer’s lender will approve the loan based on the appraised value, not what the short sale lender is willing to accept.
Typically short sale lenders go off of a BPO [Brokers Price Opinion] value which is nowhere near being an actual appraisal. The BPO agent will usually be a real estate agent that is hired by the lender to give their opinion of what the house is worth. You see, appraisers as opposed to BPO agents have to follow a set of much stricter set of rules. In addition to going through the house with a fine toothed comb recording upgrades as well as damages, they create their appraisal off of recently sold properties only. BPO agents have much more leeway when preparing their report, they are allowed to submit comparables that are sold, pending as well as active listings. So even though the BPO may have come in higher, at the end of the day, the appraisal is the only thing that counts when it’s time to get financing lined up.
Does the short sale lender adjust the payoff to match appraisal price?
Most of the time the answer to this question is yes. This situation occurs more often than you may think and most lenders have become accustomed to just making the adjustment to the payoff letter in order for the deal to go through. The problem is that lenders can sometimes take several weeks to make the change and deliver it to the title company. At this point it’s up to the buyer if they’re willing or able to stick around for that long. In this case it benefits the buyer to hang in there because they will end up getting the house for a better price.
What if the Buyer’s lender refuses to lower the price to appraised value?
There are some lenders that are far less flexible such as Fannie Mae, that will sometimes refuse to budge on the amount that they want. In this case, there are a two different things that can happen.
- The buyer refuses to wait around for whatever reason and moves on looking for other properties.
- The buyer pays cash for the property and there is no need for a lender to get involved. This situation is pretty rare because not toO many people would be willing to pay more for a property than the appraised value unless the house holds some sentimental value for them.