Your options as the buyer are to request an appraisal review from the same lender, contact another lender for a new appraisal (which you have done), pony up the cash to make up the difference between the appraised amount and the purchase price, or walk away from the purchase.

The seller's options are to stay firm on the price or negotiate with the buyer on the difference. Given the multiple offer/hot market situation, they know that they have a pretty good chance that the appraisal from the next buyer's lenders will support the purchase price.

When my husband bought his first house (pre-marriage), the appraised price and the purchase price differed by $2500. The sellers stayed firm. Since the house was the only one he found acceptable after looking at 60 (!) houses in the area and he wanted to stay with his lender, he decided to pony up the cash difference. The value of the home continued to rise; we sold it for almost double 10 years later, so it all worked out well.

The next step is to consider what you want to do if the second appraisal also comes in low. Do you have the cash to make up the difference? Will you try lender #3? Will you walk and start the house hunting process over?

Thank you, yes the first lender is contesting the appraisal. The amount of the difference is over $40K so no, I can't make up the difference. My agent thinks the sellers will negotiate if the second appraisal is also this low, but I don't feel good about it.

Unless the sellers are on a tight deadline to close, I agree with you that they'll not negotiate (much if any). They'll probably just play the odds by contracting with one of the other multiple offers they received originally.

You will be charged about $400 per appraisal even if you do not go through with the one of the lenders.

Thanks, yes I know. I feel the second appraisal will either confirm the price is too high or confirm the first appraisal was unfair. Not particularly happy about it but I don't really see another option. I'm relocating so I'd prefer to close on this house but I don't want to overpay either.

Good luck Lucy... It is always troublesome when a third party's input disrupts an agreed upon deal between the seller and buyer. But, as we all know, the lender has to make sure that they are lending against good collateral. Especially after the mess we just all went through.

It seems to me, if the lender thinks it is not worth the price that you are willing to pay, that other people will run into the same problem. The seller HAS to come down in price to sell this home....for that reason. Do you think other buyers would get different valuation results?

Have your agent and theirs pull comps for the area and give the comps to the appraiser along with reasons why those comps aren't as nice as your contracted home. I've had to do that a couple of times and was successful getting it changed both times.

Normally the comps will need to be within 300 sq ft of the subject property and be within last 3 mo, although if you can't find enough, you can go back a year. You also should be within same subdivision, although if the subdivision backs up to another more expensive one, but the comps are more favorable as is that part of the neighborhood, I've had appraisers let me use those.

That sounded strange, so here was one situation. Subdivision house was in was large and covered approx. 2 mi. Right behind the street the subject house was on, was another subdv that had much higher priced homes. The homes in the block where the subject house was, were comparable to the nicer neighborhood. The homes at the other end of the subdivision were 100k cheaper, smaller and not upgraded. Appraiser and lender accepted comps using the neighborhood on the street behind house rather than the ones in the same 2 mi wide subdivision.

The listing agent is going to be there for the second appraisal. My agent has already pulled the comps to justify the price for lender who ordered the first appraisal. The house isn't in a subdivision but an area of the city that varies widely from street to street. This house is one of the smallest ones among larger more expensive homes. My agent agrees that if two appraisals come back low that it is likely that other buyers would run into the same issue so the sellers will negotiate but one of my fears is that the sellers will decide they can't sell now if they can't close to the original price because they won't have enough downpayment/closing cash for a larger home. The way the market is there, sellers don't need to contribute to the closing costs. It would be one thing if it was $4K but it is over $40K, most folks don't have that much extra money lying around. I guess I'll just have to sit it out until the second appraisal comes in. Thanks again for the great feedback.

This is a very informational thread -thanks Lucy! for directing me here.

Good luck Lucy.

OP update - second appraisal has come in $3K over purchase price. Money well spent! Thanks again.

Good for you!

Excellent! Not all appraisers know what they are doing.

No kidding. I once had an appraiser ask me the offer price before he started the appraisal process. I had the impression that that number was going to be his number for the home. Of course it would help me in obtaining the loan but it soured me on the process.

@jrb451 Prior to 2008 that happened a lot. There was significant pressure on appraisers to bring the deal in or risk losing clients. Dodd Frank changed a lot of that, so it happens less. Bankers will often tell you they can no longer put any pressure on an appraiser, but they can still apply a bit over a longer period of time.