It is common for buyers, sellers, lenders and real estate professionals to place different appraisal values on the same property. Reconciling the differing values is a significant part negotiations between the buyer and the seller. However, once they can arrive at an agreeable price, the lender will often do an appraisal and only lend the amount it deems appropriate. For example, a buyer and seller agree on $15 million for an office complex or mall, but the bank sees the price as $14 million. In this case, the lender will only loan $14 million.
How to move forward
The buyer then has the option to renegotiate the price, shop for different financing, cover the difference or walk away from the deal. The seller may accept the bank’s value, walk away from the deal or ask the buyer to meet the agreed-upon price. Well aware that the bank’s appraisal will likely differ, the seller may even attempt to get the buyer to waive their offer’s appraisal contingency to get the negotiated price. If the difference between the loan and offer is a few percentage points, they may also try to meet somewhere in the middle.
Disputing the appraisal
The difference between the bank’s appraisal and the agreed-upon price can be substantial, so the buyer may ask the lender the do a second appraisal (known as a reconsideration of value or ROV). Valid reasons for doing this include the following:
- The bank’s appraiser did not consider recent developments in the local market or sales of comparable properties.
- The bank appraiser did not understand the local market.
- Someone attempted to influence the appraiser’s thinking.
Knowledgeable guidance is essential
Texas does not require those involved in commercial real estate transactions to use an attorney. Still, these deals involve substantial amounts of financing and negotiation. The right lawyer finds creative solutions to disputes and protects clients from unfair agreements.