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How to address differences between the appraisals and offer price

One issue that can kill a real estate transaction is the gap between the offer and the appraisal. Banks typically will only lend the amount they think the property is worth. For example, the buyer’s offer for an apartment building may be $10 million, but the bank’s appraisers put the value at $9.5 million, which is 5% less than the buyer’s offer.

Sellers are well aware of this potential roadblock and may attempt to waive an appraisal contingency that enables the buyer to back out of the deal if the financing falls through. The buyer may need to make arrangements to secure additional or different funding if they think the bank’s analysis is mistaken. For example, in a seller’s market, offers come in higher than the asking price or increase due to a bidding war, and they need to plan for that. If the buyer did not waive the contingency clause, there might still be options for closing the deal.

Renegotiate the deal

If the appraisal is close, the seller may come down to close the deal, or the two sides can meet in the middle. If the difference is substantial, the buyer and their team can look for other comparables in the area they had not considered and ask the seller to match that price point because sale prices have softened in the current economic climate. The seller can take the lower price approved by financing or walk away.

Ask the bank to dispute the valuation

The lender can officially dispute the appraisal or ask for a second appraisal. The buyer can request the lender to do this, referred to as a reconsideration of value (ROV). The reasons for an ROV include the following:

  • The appraiser missed something or made an error in conducting their analysis.
  • There may be new information that impacts the property value.
  • There may have been an attempt to influence the appraiser.

Attorneys can draft contracts and negotiate terms

Considering how much is at stake, buyers and sellers often depend upon real estate attorneys for guidance. It can involve including contingencies in the purchase offer that enable the client to walk away or finding a creative solution that works for the parties involved.

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