Appraisal Shortfall and a Seller Credit That Cannot Fix Everything
Buyer has a preapproval for $415,000 at 5% down conventional. The accepted contract price is $415,000, with a 21-day closing, a $12,450 seller credit (3% of price), and buyer's lease ending in 30 days. The lender's closing-cost estimate is $9,200. The appraisal comes in at $402,000. Buyer has $28,000 in verified liquid funds. The loan officer says the seller credit 'should cover the problem.' The purchase and sale contract has a financing contingency expiring in 14 days.
1. Calculate the maximum loan and the buyer's revised cash requirement.
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The original loan was 95% of $415,000 = $394,250, with $20,750 down. Because the appraisal is $402,000, the lender will use the lower value and lend at most 95% of $402,000 = $381,900. The revised down payment is $415,000 minus $381,900 = $33,100. Closing costs are $9,200, so cash needed is roughly $33,100 plus $9,200 minus any allowable seller credit. The buyer has $28,000, so the buyer is short at least $5,100 even if the credit covers all closing costs.
2. Can the seller credit solve the shortfall?
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No. A seller credit can generally be applied to closing costs, prepaids, and escrows, not to the buyer's down payment. The $12,450 credit exceeds the $9,200 closing-cost estimate, but the excess usually cannot be used as down payment and may be reduced or wasted. The loan officer's statement is misleading: the credit may cover closing costs, but it does not close the $12,350 loan-reduction gap caused by the low appraisal.
3. What should the buyer and agent do before the financing contingency expires?
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The buyer should immediately ask the lender for a written updated cash-to-close, request an appraisal reconsideration if there are valid comparable sales, and ask the seller to reduce the price to $402,000 or contribute differently. The buyer could add cash, obtain a gift, or change loan programs. The agent must document the financing contingency deadline and deliver any extension or termination notice in writing before it expires. The buyer should also confirm closing-agent availability and title work so the 21-day closing is not jeopardized.