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Bank Appraisal Came In Lower than Purchase Price. Now what? - YouTube
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good day everybody David Orsino from
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Royal the pager community in downtown
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Toronto and today I'm here with James
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Harrison from mortgages CA welcome James
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thank you David
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so today we're going to talk about
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mortgages obviously James is here and
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one of the things the the question were
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going to answer is what happens if you
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put in an offer say at $900,000 and your
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bank comes back and appraises at
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$800,000 then what do you panic do you
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not what do you do
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so James yeah what do you think so I
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know this there's a lot of levels to
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this conversation and we'll tackle some
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of them ideally we're just gonna we're
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gonna highlight some important points
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that you as an agent should know and
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should know to open up a conversation
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with your clients with your mortgage
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broker to understand the process so
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house is sold for nine hundred thousand
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that you bought with your clients and it
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gets a bracelet eight hundred thousand
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then what yes
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well the most important thing when
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you're going into that bidding war
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situation is first of confirm decline is
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pre-approved right it's important yeah a
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client may be pre-approved for a
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mortgage of a million dollars but the
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end the day the bank is the one buying
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the property right there are the one
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financing it so when you're making an
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offer with your agents and you're about
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to waive financing conditions you want
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to make sure you're reviewing the
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comparable sales and the offer you're
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presenting is going to be backed up by
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comparable sales because the appraiser
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is also going to use ideally the same
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comparable sales as long as they're
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within the last 90 days for a similar
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property to determine the value if the
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client is potentially paying more than
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the comparable sales justify then
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they're potentially paying a premium for
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that property and it may not appraise
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out so in this example as a time where
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the appraisal did not come in on point
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right as the mortgage broker I would
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then reach out to the realtor ideally
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before they offer goes firm right
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discuss the comparables a little bit and
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the fact that the client may be going
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firm with their
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in the event we order an appraisal right
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away and it does come in under I would
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then talk to the appraiser potentially
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provide those same comparables that the
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realtor used and maybe try and contest
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it a little bit worst case we go to
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another lender get a new approval and a
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new appraisal done if you're working
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with an experienced mortgage broker they
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should have their own network of trusted
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appraisers that they can work with and
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they can work hand-in-hand and provide
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the comparable sales and potentially get
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it up closer to at least what they paid
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I guess we have to point out though yeah
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there's there's there's risks in that in
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terms of or you know that the the
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realist agent needs to understand first
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of all if their client is putting down
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20% or less if it's a CMHC mortgage
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versus a conventional mortgage and so
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there's some risks there so in terms of
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of having the home reappraise perhaps an
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even you Leonard whatever that that'll
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work for you when when you have a
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conventional mortgage but if you are on
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a CMHC mortgage and maybe only 5% down
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that's a different conversation right
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absolutely and it's a great point so if
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a client is buying a property with less
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than 20% down
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it's an insured high ratio mortgage so
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it's either insured by say image C
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Genworth or Canada guarantee all of them
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have an automated valuation system so
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when the broker or lender submits the
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deal to them it'll go through the
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automated valuation system whether it
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hits nine times in a ten it will hit if
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you're paying it means sorry to hit one
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to the price that was paid right yeah if
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it's in one of those situations where is
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listed for 600-cells for 800 it's
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probably gonna hit a red flag and right
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I want to pray and won't automatically
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get appraised
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so CMHC will then order a full appraisal
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we have no control or the appraiser they
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use they order it if the report goes
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direct to them right so I CMHC no
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control be careful okay
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and like we were talking about a little
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bit there if that happens and doesn't
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auto appraise the appraiser goes in
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first image see and it also doesn't
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praise out the broker or lender
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they also send it to other the other two
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insurers Genworth or Canada guarantee to
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try and get an automated valuation so
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you can take the process a little
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further but again back to what we talked
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about make sure you have this
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conversation with your clients prior to
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making a firm offer
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it may be approved for pre-approved for
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a mortgage greater than their even
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buying the place for at the end of the
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day the lender is won by the property
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they need to confirm the value is there
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yeah absolutely so you have someone can
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be proved milk for a million bucks and
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they choose to buy a semi nasur seven
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hundred thousand but the bank needs to
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prove the property itself that people
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are pre-approved but the property itself
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needs to be pre-approved as well at a
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certain value that's an important
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distinction to be made as well we
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touched upon well I mean we taught we
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you touched upon what eight what agents
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should be advising their clients all
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that so that's a really important part
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of your role as an agent as the
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conversation you have with your client
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you need to open up this conversation so
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your client knows ahead of time that
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when they're going into an office
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situation and maybe it's multiple offers
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and they're thinking of bidding over
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over asking for example you need to have
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the conversation with your clients as to
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what happens when perhaps a bit over and
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then the appraiser is going to come it's
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gonna have an appraisal that is lower
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than what was actually offered and and
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your clients need to know that you need
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to know that and you need to have an
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understanding of what their down payment
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and visited payment is is it five
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percent is it twenty percent is it fifty
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percent and those each of those
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situations will have a different sort of
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resulting conversation and how you can
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advise your client so for example on the
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example that we started is let's say
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$900,000 is the accepted offer and it
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appraises at $800,000 in terms of the
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actual numbers that the buyer needs to
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come up with in terms of extra down
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payment what does that look like James
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so basically it would be the difference
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in value so you're you've agreed you've
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got a firm at nine hundred
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and have to pay nine hundred thousand so
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it's appraised at eight hundred thousand
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so now you want to say you want to do
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20% down you're gonna do 20% down of the
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eight hundred thousand well so let's
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talk about it in issues has nine hundred
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thousand yeah right and they've thousand
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twenty percent down let's say yes so
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that would normally get having a
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$180,000 down payment correct right okay
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so they are their work anticipating
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putting one hundred eighty bells right
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down so we have a London 80 grand in a
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bank ready for this for this don't be
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right right
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it's appraised at eight hundred and they
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still want to try and do twenty percent
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down right they'd have that for eight
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hundred which is of a hundred and sixty
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thousand but now they have to come up
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the difference which is a hundred
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thousand right nine hundred thousand
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accepted offer any or eight hundred
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thousand appraisal so 20 percent down of
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eight hundred is 160 plus the hundred
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percent different 100 thousand dollars
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difference is you know it's 260 and to
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put down to maintain twenty percent down
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yeah
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so if they have it great rate taking em
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up with it great or worst-case scenario
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and they qualify by it for eight hundred
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put let's say eighty thousand down and
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then come up with a hundred thousand
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dollar difference and now it's a total
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of 180 winning so there's still at 180
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down payment in the same moment but now
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they've reduced the percentage of their
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down payment and then a little higher
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risk ratio now they'll incur the high
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ratio interest right exactly so don't
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all be some extra fees for the hydration
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insurance obviously but see this is what
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I mean about you having to understand
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they are down payment their mortgage
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math and all that stuff you need to
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understand if it's five percent 20
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percent 25 percent or more so that you
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can you can make those calculations for
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them and you need to know so you can
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advise them properly yes
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let's say you know someone's buying a
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condo downtown they are pre-approved for
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a certain number they've got five
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percent down payment there's ten offers
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on the property should they go in from
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James my opinion they are not the type
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of client to be going in for real
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there's no room for error
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yeah we have five percent down and
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that's all they have they don't have a
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the mom and dad to spend yes yeah so you
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know what as the Realtors
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you want to get the deal done yeah I
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totally get it I did too but that's
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obvious client there's aunt going in on
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the bidding war with five percent down
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and I don't have room for her yeah
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exactly
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so if you're an agent representing a
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buyer and they're putting down 5% or any
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other number you need to know what that
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percentage is you need to know how much
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they are willing to put down for a down
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payment so that you can have this
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conversation with them it'll open up a
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whole bunch of questions that they'll
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have but you need to be able to address
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and when you're not able to you can go
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to someone's office such as James to to
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help you out with those those numbers
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and those questions we covered
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everything what do you think I was
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pretty good I think yeah that's good
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doctor proof yeah I think we've got
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everything
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very good James thank you once again any
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time have a great day guys
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