What If It Doesn’t Appraise But the Buyer Can Still Get the Loan?

It’s something many of us have seen before. You list the property, market it, find the perfect buyer, and then the purchaser’s lender requests an appraisal. If it doesn’t appraise, the buyer may not be able to get a loan. But, it’s not always that simple. What if the purchaser can get the loan they need to acquire the property?

We listed a beautiful, two family home in Brooklyn late last year for over $1.1mil. The property was on the market less than two weeks when a buyer who had been searching for over six months made a full price offer. We negotiated the deal, did the handshake, and sent it to the attorneys to paper the contract, which was then fully-executed. The contract of sale did not contain an appraisal contingency. There was a financing contingency, so let’s take a look at the details of that provision. The contingency stated that the purchaser must be able to obtain a loan, at the prevailing rate of interest, from an institutional lender, for $500k, which would result in an LTV of roughly 43. Most lenders would be willing to do an LTV of 80, but the buyer’s didn’t need it.

So, it’s time for the appraisal, which to everyone’s surprise came in almost $225,000 short of the purchase price. So what do we do now? The buyer wants to renegotiate, the seller refuses to. The mortgage contingency has been satisfied as the lender will loan up to $740,000, almost 50% more than the buyer actually requires. The purchaser has a $75,000 earnest money deposit in escrow.

So what would you do listing and buyer’s agents?