Your lender insists that you hire an appraiser to estimate the fair market value of the property. The appraisal is important to your bank since the home is the collateral backing the loan. It is not a simple matter in New York City since there are many factors.
Appraisers use their best tools to estimate the value, and they can come up with a different figure than you and your agent. There are times where it will be lower than your accepted offer, which presents a problem for your loan approval. However, there are certain actions you can take to rectify the situation.
Ask for a do-over
You can ask for a second appraisal from your bank. To do this, request your lender provide you with a list of approved appraisers. You want to make sure the new company is familiar with New York City’s market. Your agent can assist by providing the appraiser with recent comparable sales. Keep in mind that you likely need to pay the extra fee for another appraisal since buyers typically bear the cost.
Typically, there is a mortgage contingency clause which allows buyers to get out of the contract without penalty if he/she does not qualify for a mortgage. This might prove a key negotiating point since the bank won’t loan you the amount based on your offering price. As a buyer, you can use this opportunity to revise discussions and obtain a lower price.
Naturally, sellers are resistant to take this step. You will need to show that the appraisal is not abnormally low but accurately reflects current market conditions.
Put more money down
The bank will only loan a certain amount based on the appraisal. However, you can still buy the apartment for the same price. After all, the bank is not interested if you pay more. It is only going to lend you a certain amount, though. The lender may cap the loan, but you can make a larger down payment. That way, the loan stays within the bank’s approved range.
There are a couple of caveats. Clearly, you do not want to overpay. Therefore, make sure your offer reflects the current market value, which your buyer’s agent can help ensure. Furthermore, if you are purchasing a co-op, check that you still meet the required post-liquidity requirement.
Challenge the appraisal
If you honestly feel the appraisal is too low, you can submit facts and figures that support your claim. The easiest is when there are factual errors, such as the number of bedrooms or square footage. You can also provide relevant comps, but you need to make sure these are recent and better comparables than what your lender used. For instance, a co-op unit has a different value than a condo, even in the same neighborhood. Units in the same building can have different valuations, depending on the size, view, and location. Still, this is not an easy argument to win.
Shop for another lender
You can always seek another lender, which conducts a new appraisal. This option presents several challenges, however. First, there is no guarantee that your new bank’s appraisal will come in any higher than your previous lender’s estimate. Second, you have to pay another appraisal fee. Third, there are other factors to consider, such as the interest rate and other fees. Fourth, your new bank may not approve of the building. Fifth, the seller may get spooked since you had pre-approval, and you are starting the process over. Lastly, your closing is likely to get delayed, further upsetting the seller.
If all else fails, typically you can back out of the deal without penalty assuming you have a mortgage contingency.