How to Challenge a Low Appraisal in NYC

Save 2% When Buying in NYC: https://www.hauseit.com/hauseit-buyer-closing-credit-nyc/
NYC Buyer Closing Cost Calculator: https://www.hauseit.com/closing-cost-calculator-for-buyer-nyc/

How to Challenge a Low Appraisal in NYC: https://www.hauseit.com/low-appraisal-rebuttal-nyc/

What happens if the bank's appraisal comes in too low? We’ll explain everything from how the appraisal rebuttal process works to how to prevent a low appraisal in the first place in the following video. I'm Nick at Hauseit, visit our website https://www.hauseit.com to save money when buying or selling real estate here in New York City, so let's get started.

If an appraisal comes in lower than the sale price, it means that the buyers bank will only issue a mortgage based on the appraised value as opposed to the contract price itself. This results in a financing shortfall which is also known as an appraisal gap for the buyer.

Here is an example of what happens if the appraised value comes in below the contract price. Let's say the contract price is $800k and the appraisal comes in lower at $750k, the bank's loan to value ratio is 80%. The original loan size is the contract price of $800k x 80% which is $640,000. The new loan size is the appraised value of $750k x 80% which is 600k. The financing shortfall is $640,000 - $600,000 which is $40,000.

Because banks don't typically increase the loan-to-value ratio as a response to a low appraisal, it means that this financing shortfall must be covered through the buyer putting down an extra $40,000 on the purchase. If the buyer has an appraisal contingency or a minimum loan amount contingency, it means that she or he is entitled to cancel the contract in response to a low appraisal. However, most buyers and sellers will make an effort to keep the deal alive by utilizing any number of low appraisal response strategies as we'll discuss momentarily.

What are the next steps if an appraisal comes in too low? There are a number of strategies for responding to a low appraisal in New York City. We explain each approach in detail below. Option 1, buyer increases his or her down payment. The easiest response to a low appraisal in New York City is for the buyer to increase her or his down payment to cover the appraisal gap. If the appraised value is extremely close to the contract price, most buyers should be amenable to putting slightly more down on the purchase.

Now, if the appraised value comes in way lower than the purchase price, most buyers will be resistant to increasing the down payment. They might also be concerned that they're simply overpaying. If you are buying a co-op apartment, increasing the down payment will reduce your post-closing liquidity and this will increase your risk of not meeting the co-op board's financial requirements so that's always something to keep in mind.

Option 2: seller lowers the contract price. The easiest way for the seller to solve a low appraisal is to agree to reduce the contract price to the appraised value. Most sellers will be resistant to this idea however, especially if they feel that the appraisal is inaccurate and out of touch with the market. The most common approach is for the buyer and seller to renegotiate the contract price. One common proposal is for the buyer and seller to meet in the middle and set the new contract price as the midpoint between the appraised value and the original purchase price.

Option 3: buyer applies for a mortgage with a new bank. If the buyer and seller cannot agree on a new contract price, the easiest step is for the buyer to apply for a mortgage with another bank. Applying with the new bank means that another appraisal will be ordered. Oftentimes, buyers are resistant to applying with another bank since they will have to pay for another appraisal which can run anywhere from $500 to $1,000.

In addition, a buyer who has secured an attractive interest rate lock will be even less interested in applying with a new bank presumably at a higher interest rate later down the line. Furthermore, applying with the new bank can often delay the co-op board approval and general deal closing time line by 2 to 3 weeks or perhaps longer.

Option 4: buyer submits an appraisal rebuttal also known as a reconsideration. Submitting an appraisal reconsideration with the buyer’s lender is another way to respond to a low appraisal. Most appraisal challenges will only be seriously considered if there are factual errors in the appraisal or if the appraiser did not include the most relevant comparable transactions.

Save 2% When Buying in NYC: https://www.hauseit.com/hauseit-buyer-closing-credit-nyc/
NYC Buyer Closing Cost Calculator: https://www.hauseit.com/closing-cost-calculator-for-buyer-nyc/
.
.
Hauseit LLC, Licensed Real Estate Broker
Tel: (888) 494-8258 | https://www.hauseit.com
_
#hauseit #hauseitnyc