Losing Earnest Money When An Appraisal Comes In Too Low.

Q: I live in Florida and I tried to buy a home for $156,000 that appraised for only $140,000. The builder refuses to sell it to me for the appraised price and wants me to bring $16,000 to closing, which I cannot afford.

I can qualify for an 80 percent mortgage on the $140,000. Unfortunately there is no appraisal or mortgage contingency clause in the contract. The developer is willing to cancel the purchase but is planning to keep my $5,000 deposit.

Am I out of luck since neither of those clauses is in the contact? Interestingly, if I had gone with the builder’s lender, they would have allowed me out and given me my deposit back – which somehow seems like a violation of RESPA.

A: Your big mistake was to not have your contract reviewed by an attorney before you signed it. So-called “standard” builders’ contracts are rarely buyer-friendly. The developer has paid good money to have a team of real estate attorneys make sure it favors the developer.

If you had a real estate agent assist you, he or she should have insisted you insert a financing contingency or appraisal contingency into the contract – especially today and especially in states like Florida, Arizona, Nevada, and Arizona, where home prices have fallen so sharply in value.

If you recently signed a contract to purchase the home and decided to offer $156,000, you should have done your homework before making that offer. If you did your homework, you would have seen what other homes sold for recently in that area and what other sellers were offering their homes for sale. You should have also seen the large or small number of foreclosures in the area and gotten a pretty good sense of whether the home (brand new or used) was worth $156,000.

Having said that, if you feel the home is worth $156,000, you might want to review the appraisal more closely. It’s possible the appraiser could be wrong about the valuation. The appraiser’s valuation could be too low, but it also could be accurate.

Recently, we have received comments from readers about appraisers who have seen their work load drop so much that they have started to get appraisal jobs outside the areas they know best. In some cases, some of these appraisers do a great job, but in others, their appraisals are way too low.

You need to determine whether the appraisal seems to be right or wrong based on what you learned about the local real estate market while shopping for a home. While you’re not an appraiser, if you looked at dozens of homes before making an offer on this one, you might have a better idea of what this home is worth than the appraiser. If you worked with a real estate agent to buy the home, that agent and you should have worked hard to make sure you didn’t offer too much for the home.

If you did your homework, know the market pretty well, and think the appraiser is wrong, you should discuss all of this with your lender and see if a second appraisal is warranted.

But if you have a hunch the appraisal is right and you didn’t do your homework, you may need professional assistance to see where you stand in getting your $5,000 back.

Please talk to a real estate attorney now to see if there is some sort of settlement that can be worked out with the builder. If you can’t find a good attorney on your own, call your local bar association, ask for the head of the real estate law committee and then ask that person for a recommendation.

For more articles on home appraisals and problems with home appraisals see:

ThinkGlink.com Appraisal Topic page

Low Appraisal Cancels Financing For Buyer

For more articles on losing earnest money on the purchase of a home see:

Canceling a House Contract Before the Closing