The Appraisal Shortfall and the Twenty-One-Day Clock
An accepted offer in Windham: price $310,000, 90% loan-to-value conventional financing, a 21-day financing contingency, seller credit of $4,000 toward buyer closing costs, closing on the 30th of the month. Two days before the financing deadline, the appraisal comes back at $295,000. The lender will lend 90% of the lesser of the purchase price or the appraised value. The buyer has $18,000 in cash beyond the down payment and closing costs already budgeted. Maine's real estate transfer tax is $2.20 per $1,000 of consideration, customarily split between the parties at closing. The buyer's agent is pressuring the listing side to “just drop the price to the appraisal so we don't lose the deal.”
1. Compute the shortfall and lay out the buyer's and seller's realistic options before the deadline.
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The math:
- At a $310,000 contract price: loan = 90% × $310,000 = $279,000.
- At a $295,000 appraised value: loan = 90% × $295,000 = $265,500.
- Shortfall = $13,500 that the lender will not finance.
Buyer's options:
- Cover the gap in cash. The buyer has $18,000 available, so this works - but it leaves only $4,500 of cushion, and the buyer would be paying $310,000 for a property the lender values at $295,000, which matters on resale.
- Renegotiate the price down toward $295,000 (or split the difference). A $15,000 reduction removes the gap; a $7,500 split leaves roughly $6,000 for the buyer to cover.
- Challenge the appraisal with better comps - timely, in writing, through the lender. Appraisal review is possible but unreliable, and it must happen inside the contingency window.
- Terminate under the financing contingency by written notice before it expires.
Seller's options: reduce, hold firm and call the buyer's bluff, or offer a credit - but note that a credit does not fix the loan-to-value problem; only a lower price or more buyer cash does.
Practical read: the buyer can close by combining a modest price reduction with cash. Telling the seller “drop it to $295,000 or we walk” is a negotiating posture, not an analysis - and the listing agent should not relay it as if it were the only option.
2. The parties settle at $300,000. Compute the transfer tax under both prices, identify who bears it, and explain what the declared value affidavit must show.
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Transfer tax computation (Maine, $2.20 per $1,000 of consideration):
- At $310,000: 310 × $2.20 = $682 total.
- At $300,000: 300 × $2.20 = $660 total.
- Difference: $22.
Split 50/50 as is customary in Maine practice: $341 per side at $310,000, $330 per side at $300,000. If the parties have agreed in writing to a different allocation, follow the contract - the tax is imposed on the transfer, and a written agreement can shift who pays.
The teaching point: a $22 swing in transfer tax is not a reason to structure or delay anything. Do not let the tax tail wag the dog, and do not let anyone talk about “saving transfer tax” by understating price - the savings are trivial and the exposure is not.
Declared value affidavit:
- It must state the actual consideration paid, including any assumed obligations and the value of personal property only where properly allocated and documented.
- It is filed with the deed at the registry of deeds, and it is signed under oath. Understating the price to reduce tax, or to help the buyer's lender, is a false statement with real consequences.
- The seller credit of $4,000 reduces cash to the seller but is not a deduction from consideration - the tax is computed on price, not on net proceeds.
- Confirm the deed, the affidavit, and the settlement statement all agree on $300,000.
3. The financing deadline is in two days. What must happen, and what is the risk if the buyer's agent lets it pass?
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The deadline is the whole case. Everything else is arithmetic.
What must happen now:
- Determine the exact contingency expiration date by counting from acceptance as the contract specifies, and confirm how notice must be given (in writing, to whom, by what method). Do not rely on a phone call or a text.
- Read the contingency language. A generic financing contingency lets the buyer terminate if financing cannot be obtained on the terms specified. A low appraisal that forces $13,500 more cash may or may not satisfy that language - some contracts tie it to the loan amount and rate, not to the buyer's cash comfort. If the contract has a separate appraisal contingency, that is the cleaner exit. This is a legal interpretation question: refer the buyer to counsel and do not advise on rights under the contract.
- Get the lender's written explanation of the shortfall and the revised loan terms, and deliver it per the contract.
- If the buyer intends to terminate or renegotiate, do it before expiration, in writing, with proof of delivery.
Risk if the deadline passes:
- The buyer loses the contractual exit and the earnest money becomes exposed if the buyer later refuses to close. The buyer may be forced to close or forfeit.
- The seller's leverage changes completely: after expiration, the seller can hold the buyer to the $310,000 price.
- The buyer's agent's “just drop the price so we don't lose the deal” pressure is backwards - the party with the clock running is the buyer. A licensee should not manufacture urgency for the other side, and should not let a client's deadline lapse while negotiating.
Document everything: the appraisal, the lender's written terms, the notice, the delivery confirmation, and every conversation about the options. If the buyer decides to proceed and cover the gap, get that decision in writing.