Anyone who has bought a home knows that the seller and the buyer rarely agree on the price. But the banks often put their foot down, providing loans only for the appraisal price. It can be a few thousand dollars in the residential market, but the gaps can be much more money when the transaction and loan involve commercial property. For example, the seller wants $10 million for an office building while the bank appraiser puts it at $9.5 million, which, at 5% less, is a $500,000 difference.
High prices and bidding wars
While appraisals rarely match, sellers may know their selling price is high and try to waive an appraisal contingency that allows the buyer to walk away from the deal if the financing isn’t there. They expect the buyer to find any additional money not provided in the loan, especially if the price results from a bidding war.
Other options available
Sometimes the appraisal or selling price is only a few percentage points off, and the seller and buyer meet somewhere in the middle. If the difference is more substantial, the buyer can argue for a lower price by providing comparable sale prices in the area or arguing that the market has softened since the building went p for sale. The seller can meet bank appraisal or buyer’s offer or walk away.
The buyer can also request the lender to do a second appraisal, referred to as a reconsideration of value. Valid reasons for this request include:
- There is new information that affects the value of the property.
- The appraiser did not understand the local market and made an error in pricing.
- There was an attempt to influence the appraiser’s thinking.
Real estate attorneys can solve these disputes
Unlike some states, Pennsylvania does not require an attorney to handle real estate transactions. Still, disputes can involve a substantial amount of money, making a real estate attorney a valuable part of the dispute and transaction. They can find creative solutions or protect clients from feeling forced into a deal they want to avoid.