My home didn't appraise, now what? This is a question I have been hearing a lot more than I would prefer lately. I have heard it on both sides of the transaction (from buyers and from sellers), and I'm not sure which side is worse. On the listing side, there is nothing more frustrating than negotiating a nice deal for your sellers only to have the appraisal come in lower than one might have hoped. In this case, the question was asked by some young, first-time buyers; here is my response to them:
First of all, stay calm...no one died, everyone's children are safe and accounted for...deep cleansing 
breath...now breathe out very slowly...ok, better? Good! Let's look at your options, because you have several; it's not "game over" yet.
Option 1 - This is not likely to be your favorite. I know how badly you want this house, how you looked and looked and how it met every single item on your extensive (jk, lol) list of requirements. But this is the easiest to explain, so I'll get it over with first. It IS possible for you to exit the deal at this point in time. You can't get a loan for a purchase price not supported by an appraisal, and being able to get a loan was a requirement we specified in your contract. There is almost certainly another home that would suit you every bit as well out there somewhere. Ok, not your first choice, so let's look at...
Option 2 - In this case, the appraisal was only a few thousand dollars less than our contract price. Although the appraisal will limit what you can borrow to buy this particular home, there is nothing that says that you can't make up the difference. Check with your lender; they may want to see some documentation of where the extra money is coming from. Don't have even one single more dime to spare? Well that brings us to...
Option 3 - The sellers can agree to accept the appraised value as the full purchase price. There are several very good reasons they might be willing to do this, and trust me, I will be pointing those out to their agent. First of all, our market is not yet improving in value. Maybe not dropping much, maybe drifting a bit lower, depends on the neighborhood, but the chances of them getting another offer at higher than this appraisal came in are slim. Interest rates have been rising, further limiting the number of possible buyers. And you, like many if not most buyers in this price range, are using an FHA loan. Once an FHA appraisal is completed, it attaches to the property like a barnacle. A new one cannot be obtained for four months. So they will not be able to sell for more than this amount to another FHA buyer for a long time, if ever.
Finally, in your specific case, it just so happens that this house was an investor flip. The investor is not going to decide to just take it off the market and not move, as some owner-occupant sellers might. It also meant we had to have two appraisals, with the lower being the one the underwriter went with. This two appraisal thing is not your fault; if we had only had the first, we would be good to go. He is still making a 
nice chunk of change (and good for him! He bought smart and fixed it up nicely). But unless something changes, the 90-day flip rule waiver for FHA purchases is set to expire February 1. He will probably have to wait the full 90 days from his purchase date to even get in contract again, well after we will have closed escrow.
So let's try Option 3 on for size. I think there is a very good chance it will work for all concerned.
Photo credits: Game Over by axeldeviaje, Hand Shake by USFS Region 5, both from Flickr via Creative Commons License
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Copyright © Linda S. Humphrey, all rights reserved
Linda S. Humphrey, M.D., CDPE, e-PRO, EcoBroker, GREEN
Broker/Owner - Humphrey Home Connections Realty, LLC
cell: 775-287-4665
office: 775-232-8515
www.HumphreyHomeConnections.com
I just sold this Venice FL Bird Bay waterfront condo in just 3 days. I can sell yours too. If you need to make a move quickly and effectively, I am the realtor for you. I know the area well, and am knowledgeable on the current market trends. Please call me today at 941-270-1851 to see how easy real estate can be.
