Author Topic: Buying Over Appraisal?  (Read 1607 times)

katstache92

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Buying Over Appraisal?
« on: September 19, 2018, 03:34:42 PM »
Hi All,

I am house hunting and have found a unit 1.4 miles from work.  Where I live traffic is a real concern and I want to be as close to work as I can be.  The commute for this unit would be super sweet and would not cross any major roads.

This is also the 'cheapest' unit I have looked at.  It is a 1/1.  Everything else is a 2/1 or 2/2, priced 30k+ higher, farther away (3+ miles), crosses major roads, and generally needs a lot of renovations in order to be livable.

The market is super competitive at the price point I'm considering ($160 or lower.)  Most units have been in the $130-$145 range (and need major updates) and this one is listed at $110k (and needs almost no updates.)  I've lost 2 other units because my bids were not high enough (I offered list price.)

The seller bought it for $75k and claims they put $25k into the unit in renovations.  The unit appraised at $100k for another buyer whose deal fell through.  The seller is unwilling to accept anything less than $105k.  They claim they would be in the red below $105k.  This unit would cost me an additional $5k in cash to purchase over the 80% mortgage ($25k total to close.)

Pros: super close to work (I could bike to work,) very inexpensive, smaller than other units (will help me keep my stuff collection to a minimum,) If I pay my current rent to the mortgage I would have this paid off in less than 10 years, it's almost completely updated so I won't have to do much (not very handy,) it faces the correct way so I wouldn't get too much afternoon sun, I would finally be done and settled in a home (I'm currently in an apartment and don't feel settled.)

Cons: $5k above appraisal, limited to no wiggle room if something comes up on the inspection (although there was no response to inspection on the previous contract,) I have been feeling a strong urge to get settled here (I moved across the country) but I don't want to settle for something because I'm desperate.

Questions:
  • Are there ever times paying above appraisal is acceptable?  The explanation I received for the lower appraisal is that due to limited inventory the appraisers don't have enough comps at the moment.
  • Are there other things I'm not considering here?
  • What would you do?

Other notes:
  • Seller has said they might rent it rather than taking less than $105k - this might be a tactic
  • I still have questions about the health of the HOA - so this might all be for naught once I get my questions answered about their budget.
  • This area has the potential to be impacted by climate change, so spending less is ideal in case things really hit the fan and a future sale isn't possible

Thank you!
Kats

sammybiker

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Re: Buying Over Appraisal?
« Reply #1 on: September 19, 2018, 04:27:27 PM »
For all the pros this place has going for it, I wouldn't sweat paying another $5k on this deal to lock it in, especially being that it's a primary residence that you'll be staying in for awhile.

Appraisals are as much art as they are a science and $5k delta, even on a $100K purchase, isn't something that would turn me away.

Buy it.

brian.ellwood

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Re: Buying Over Appraisal?
« Reply #2 on: September 19, 2018, 05:53:28 PM »
Appraisals are all over the board in my market (middle TN). The better question I like to ask is "If I had to move out of this place and couldn't sell it for what I owe, could I make it into a rental and cashflow each month? (Versus cut checks each month to keep it). If the answer is yes, you always have a plan B.

katstache92

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Re: Buying Over Appraisal?
« Reply #3 on: September 19, 2018, 06:29:06 PM »
Thanks Sammy - I needed someone outside of the situation to tell me it wasn't an insane thing to do.  I'm planning on living here for years and years.  I stopped by after work and met some of the neighbors - they were friendly and helpful.

Thanks Brian - It really depends how many years I get on my loan.  30 years - no problem, rent could cover it and repairs.  20 years - ehh, close enough.  10 years - not currently.

I'm leaning towards going for it. Thank you both!

Better Change

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Re: Buying Over Appraisal?
« Reply #4 on: September 20, 2018, 05:12:37 AM »
You could always just....get another appraisal.  If you're mortgaging the property, your mortgage company will run their own appraisal anyway.  It might come out at $110k, or it might come out at $80k.  But then you can always just get another one done!  It's really not that big of a deal unless you're putting a substantial amount EXTRA down to cover the difference.  In this case, it seems pretty low risk.

waltworks

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Re: Buying Over Appraisal?
« Reply #5 on: September 20, 2018, 09:15:38 AM »
$5k? Is this a joke? You'll save that in commuting costs in a year. Just buy the place.

-W

katstache92

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Re: Buying Over Appraisal?
« Reply #6 on: September 20, 2018, 09:26:50 AM »
Thanks Better - there will be another appraisal done through my mortgage company, if they accept my offer. We still have an appraisal contingency in the offer - that it will appraise at $100k or higher.  So if it does come back at $80k I would walk away because I'm not putting in $25k cash.

W - I always took "don't pay over appraisal" as a hard and fast rule.  I didn't think it was something that would ever happen.  In fact, when I sold my home recently I had to reduce the price to $5k under what we agreed upon so the sale would go through when the appraisal came back $5k lower.  So I was having a hard time justifying the extra spend when it was a rule I thought was never broken except in areas like southern california, where I am not.

You guys are the most financially savvy people I know - so if you're also justifying the extra $5k spend then it makes me feel like I'm making a rational decision not just a "I really like it and want it and will pay whatever to get it" type decision.

Thanks for all of your input!


Finallyunderstand

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Re: Buying Over Appraisal?
« Reply #7 on: September 20, 2018, 10:10:21 AM »
Appraisals are an opinion, not a fact.

Example:  A relative was selling his house and had a $25k cut appraisal.  He put it back on the market and got a new offer immediately and the appraisal came in $28k higher than the previous one just a month before. This was on a cheap sub $100k rental so that's a huge percentage difference.

theoverlook

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Re: Buying Over Appraisal?
« Reply #8 on: September 20, 2018, 01:06:07 PM »
$5k? Is this a joke? You'll save that in commuting costs in a year. Just buy the place.

-W

Walt is right on. I was going to say the same thing when reading your first post - commuting costs alone will make up that difference. You should walk or bike to work; 1.2 miles is too short to drive, even if it's winter time. ;-)

I used to have a 1 mile commute. I loved it.

You will not notice the $5k down the road. It should be the least of your worries. But I bet when the bank gets it appraised, it comes in at $105k. Mortgage appraisals are answering the question "Is it worth what the contract is written for?" and not "What is this house worth?"  The vast majority of the time, the appraiser is going to answer that question yes.

katstache92

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Re: Buying Over Appraisal?
« Reply #9 on: September 21, 2018, 09:26:26 AM »
I'm only about 5 miles from work now, for reference.

Thanks for the help everyone.

We're now under contract!

hdatontodo

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Re: Buying Over Appraisal?
« Reply #10 on: September 21, 2018, 12:54:30 PM »
have you every made an offer with a $5K over best offer with max of $$ over listing price option?

Dicey

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Re: Buying Over Appraisal?
« Reply #11 on: September 24, 2018, 11:15:11 PM »
I'm with Walt. Except that a 2/1 or 2/2 is going to appreciate better than a 1/1 over time. How long are you planning on being there? Will you stay post-FIRE? These things are bigger concerns than 5k over asking. Oh, and this: how stable are you internally? Will you care if the market cools and your unit decreases in value for a number of years? You have to be of stern enough stuff to stay the course if things go south. Also, check into the HOA's health. Go to Board meetings and consider joining the Board. Having the ability to take a mustachian approach saved me from a huge Special Assessment at one point. On another Board, my approach resulted in dues being frozen for a couple of years, then actually rolled back, because we had too much money and full reserves. It still makes me happy when listings brag about the low dues and healthy reserves. Worth an hour or three a month - in spades. Plus, it's just a great way to know what's going on.

katstache92

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Re: Buying Over Appraisal?
« Reply #12 on: September 25, 2018, 09:14:14 AM »
I've never made an offer over list prive hdatontodo.

Dicey - I agree the 2/1 or 2/2 would appreciate better.  However, my new location is in an area that might be impacted by climate change.  Therefore, I feel better mentally by having less of my net worth 'invested' in something that I might never be able to sell.  Now, I'll be in the same boat as a lot of other people if this happens, but I don't want it to destroy my savings.

I'm mentally prepared to consider my mortgage payments as "gone" and not something I will necessarily be able to get back.  The reason I'm okay with this is that I need some permanence in my life and this will be $300+ a month cheaper than renting, where you're guaranteed to not get your money back.

I also plan on staying here for many years, most likely post-fire.  The only long term issue with it is that the only bathroom is upstairs - so if I ever have issues with walking I would need to move.  If it's a short term issue, like a hip replacement, then I would just rent something temporarily while I recover.

I believe I can ride out the decrease in value - in fact, if something did come up and I had to leave, I would rent the unit before I would sell it at a loss.

I will definitely be getting involved with the community.  I had a bad experience trying to be involved at my last condo - but hopefully this one will be different.  Prior to that I was on the board at my first condo.  So I definitely see the value in being involved and I plan to do so, if they'll have me.

As far as the HOA health - they had issues during 2008 but seem to have recovered pretty well.  There are some minor maintenance issues, but nothing staggering and the budget seemed okay to me.

Thank you!

robartsd

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Re: Buying Over Appraisal?
« Reply #13 on: September 25, 2018, 10:34:34 AM »
The seller bought it for $75k and claims they put $25k into the unit in renovations.  The unit appraised at $100k for another buyer whose deal fell through.  The seller is unwilling to accept anything less than $105k.  They claim they would be in the red below $105k.
That's the seller's problem, not yours. Plenty of people make mistakes in real estate and lose some money on deals. If you bought this place then suddenly needed to sell it, that would be you in the red.

While this unit fits you well right now, you should consider potential life changes. Where are you at in your career? Are you interested in having a family? I would expect to lose money on this unit as an investment (at least after inflation), but it still makes sense as a primary residence due to limiting commuting and not overspending on housing that you don't actually need. Only risk is if your needs change soon enough that those savings haven't made up for your real estate loss when you are ready to move on.

Cwadda

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Re: Buying Over Appraisal?
« Reply #14 on: September 25, 2018, 10:59:43 AM »
The appraisal for the other buyer was just one opinion of value. Chances are it would appraise for $105k if you move forward on the deal. $5k is not far off.

katstache92

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Re: Buying Over Appraisal?
« Reply #15 on: September 25, 2018, 11:19:00 AM »
Hi robartsd - I just started working for my dream company in a fabulous position with a good boss.  I don't see myself leaving for a long time, if ever.  Obviously things change, but I stuck it out for 4 years in a job I didn't like with ridiculous bosses.

No real interest in having a family, I'm good solo.  I'm not against it, if something happens then it happens, but I don't anticipate that coming up.

Cwadda - I'm going to order the appraisal as soon as possible after the inspection, which is scheduled for tomorrow morning.  So we'll see!

Linda_Norway

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Re: Buying Over Appraisal?
« Reply #16 on: September 25, 2018, 11:37:26 AM »
Hi robartsd - I just started working for my dream company in a fabulous position with a good boss.  I don't see myself leaving for a long time, if ever.  Obviously things change, but I stuck it out for 4 years in a job I didn't like with ridiculous bosses.

No real interest in having a family, I'm good solo.  I'm not against it, if something happens then it happens, but I don't anticipate that coming up.

Cwadda - I'm going to order the appraisal as soon as possible after the inspection, which is scheduled for tomorrow morning.  So we'll see!

In a working situation, things can change swiftly. Are there other companies in the same area where you could work if things would become problematic some time in the future?
« Last Edit: September 26, 2018, 12:31:50 AM by Linda_Norway »

katstache92

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Re: Buying Over Appraisal?
« Reply #17 on: September 25, 2018, 01:46:54 PM »
Yes there are several other options available within a reasonable driving distance. Obviously they are not this close to the unit, but if something disastrous happened then I would do what needed to be done to have a job, should I still need one.

katstache92

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Re: Buying Over Appraisal?
« Reply #18 on: October 02, 2018, 07:58:33 AM »
Well, things just got a lot more complicated.

The appraisal came back at $88k.  Soooooo, yeah.  Pretty sad about it.

It's possible the seller will say, you still have to pay the $105k, in which case I'm out - I'm not paying $17k over appraisal.
It's possible the seller will flex somewhat, although this is unlikely, in which case I need to figure out what I'm willing to pay over appraisal.

Anyone have any thoughts on how to find a 'sweet spot' between original contract and appraisal?

afox

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Re: Buying Over Appraisal?
« Reply #19 on: October 02, 2018, 09:54:57 AM »
Well, things just got a lot more complicated.

The appraisal came back at $88k.  Soooooo, yeah.  Pretty sad about it.

It's possible the seller will say, you still have to pay the $105k, in which case I'm out - I'm not paying $17k over appraisal.
It's possible the seller will flex somewhat, although this is unlikely, in which case I need to figure out what I'm willing to pay over appraisal.

Anyone have any thoughts on how to find a 'sweet spot' between original contract and appraisal?

That is wonderful, lucky you!  The seller must disclose previous appraisals to future buyers.  You might want to ask your agent to remind the sellers agent of that, sometimes agents aren't up to speed on those details.  No future buyer is going to offer $17k over the appraisal, seller knows that, sellers agent knows that.  For no other reason than a buyer would have to come up with more cash to close since bank wont issue a mortgage for $17k more than appraisal.  SO, your next step is to counteroffer $88k for the place, seller would be stupid to pass up your offer.

Don't express any inclination of desire to pay more than appraisal to YOUR agent!!!

Let us know how it goes.

katstache92

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Re: Buying Over Appraisal?
« Reply #20 on: October 02, 2018, 11:00:15 AM »
Thanks afox, but I believe this seller would rather rent the unit than sell it 'at a loss.'  Emphasis on at a loss is mine, since there's no way for me to know what they actually spent doing the upgrades.

So, yes, I wish I could get it for $88k, that would be amazing, my housing costs would be so small.  But I don't think it's going to happen.  So the question is, is it worth a bit of extra cash to me to lock in low housing costs.  The original $5k might not cut it, but is it worth an additional $10k in cash?  That's what I'm trying to figure out.

If this unit doesn't work out, I'll probably end up in a unit that costs $135-$160.  Sure, there could be another 1/1 that comes on the market in this same neighborhood, but I won't wait around forever for that to happen.

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Re: Buying Over Appraisal?
« Reply #21 on: October 02, 2018, 11:05:06 AM »
I'd offer them $94k and see what they say.  (That is assuming you are paying cash. Mortgages often won't allow you to go over appraised.)

afox

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Re: Buying Over Appraisal?
« Reply #22 on: October 02, 2018, 11:12:16 AM »
well, sounds like the seller might not be motivated to sell, that is rare, usually the sale is part of a larger plan (cash needed to finance a new purchase or something).  dont believe anything agents tell you, neither agent has financial incentive in line with your best interests.  your agent would love it if you dont buy this place and buy another that is $50k more.  you have to make your own decisions, the agent is just your "executor".


katstache92

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Re: Buying Over Appraisal?
« Reply #23 on: October 02, 2018, 11:38:12 AM »
I have enough cash that I could pay the additional amount over the low appraisal, up to a point.  So I could indeed offer $94k and finance 75% of the $88k and pay the rest in cash.

Haha, I think my agent is a bit tired of all of my detailed questions.  Too bad for her.

afox

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Re: Buying Over Appraisal?
« Reply #24 on: October 02, 2018, 11:51:40 AM »
I have enough cash that I could pay the additional amount over the low appraisal, up to a point.  So I could indeed offer $94k and finance 75% of the $88k and pay the rest in cash.

Dont tell your agent that!!!

katstache92

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Re: Buying Over Appraisal?
« Reply #25 on: October 02, 2018, 11:54:17 AM »
She already knows - we've put in offers on places that were $135 and I was still putting 20% down on them.

katstache92

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Re: Buying Over Appraisal?
« Reply #26 on: October 03, 2018, 09:44:32 AM »
Well - the seller has decided they don't want to drop below 100k. I'm not going to pay 100k.  I'm not sure how much wiggle room there is, if any.  The seller's agent has convinced my agent twice now that "this is the lowest the seller can go."  So who the heck knows.

Mrs.Piano

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Re: Buying Over Appraisal?
« Reply #27 on: October 03, 2018, 09:49:50 AM »
Just walk away.

Dicey

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Re: Buying Over Appraisal?
« Reply #28 on: October 03, 2018, 09:54:09 AM »
It might be a gift in disguise. I read your responses, and I still think you're better off with a 2/1 or a 2/2, especially with the only bathroom being upstairs, which is wonky, even for guests visiting now. As to losing it to natural disaster, buy good insurance and don't worry about it. The thing with renting is if the unit is wiped out, the LL is on the hook, not you, so your total savings comparison, in the event of a disaster, isn't a very good one, IMO.

It feels like you're willing to write off way too much money. I can't walk away without making this point, mustachian that I am.

katstache92

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Re: Buying Over Appraisal?
« Reply #29 on: October 03, 2018, 02:03:02 PM »
My agent is sending over the appraisal that was done last month that came in at $100k.

I'm leaning towards walking away.  This seller is essentially asking me to bring an extra $4k in cash because of this appraisal.

It's not my fault he put too much money into this unit.  I shouldn't have to pay extra to make up for his mistake.

I'm out a bit over $800 for the inspection and appraisal, sigh.

A 2/2/ or 2/1 is more conventional and will probably appreciate better over  time - but won't help with my "getting rid of stuff" goal.

It's just starting to feel a little weird.  But this whole thing is disheartening and frustrating.

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Re: Buying Over Appraisal?
« Reply #30 on: October 03, 2018, 02:48:45 PM »
Agree with walk away.

And just because you get a 2/2 or 2/1 doesn't mean you need to fill it with junk

katstache92

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Re: Buying Over Appraisal?
« Reply #31 on: October 03, 2018, 03:00:35 PM »
Ahahahaha the seller just sent over the former "100k" appraisal... which lists the property value as $95,500 which, as you smart people know, is not equal to $100k.  So now I'm super annoyed.

Anyway, just wanted to share with you lovely people.

Thanks for all of your advice and input!  I'll keep you up to speed with any new updates to this drama.

Jon Bon

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Re: Buying Over Appraisal?
« Reply #32 on: October 03, 2018, 06:07:27 PM »
So 2 things

1. You are playing this right, you are focused on whats best for you and making the numbers work for you.

2. Yeah its annoying and they are totally jerking you around. But as I am sure you know the last place you want emotions is in business. Grit your teeth and dont let pride/anger/depression weight in any of your decisions.

lhamo

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Re: Buying Over Appraisal?
« Reply #33 on: October 03, 2018, 06:22:43 PM »
Walk away.  They are liars, and stupid besides.

I bet they cut corners on the renovation.

Consider yourself lucky your appraisal came back low.  You could have overpaid 20k on this place.

FireUK

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Re: Buying Over Appraisal?
« Reply #34 on: October 04, 2018, 01:28:26 AM »
From the start of this thread, it sounded like the seller was just trying it on in order to squeeze a bit more cash out of you. If he lies about the appraisal, then chances are he has lied about the amount he has spent on the renovation. I would either walk away or offer $88k and tell him to take it or leave it. He might actually accept it - you have no idea if he can afford to rent this place out if he doesn't sell it. For all you know, he could need a sale and just might take the $88k if you offer it. Worth a try - imagine how much lower your housing costs would be and it would perhaps mean you reach FI earlier than planned.

And don't worry about what your agent thinks of you - that's her job to answer questions.

katstache92

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Re: Buying Over Appraisal?
« Reply #35 on: October 04, 2018, 07:34:50 AM »
They came back saying they would accept $98k but no money (it was only $300) for the response to inspection.  That's still $2.5k over the highest appraised value.

So I sent over the cancellation of the sale with a note saying if they went to the $95.5 then we could stay in business.

Waiting to hear back on that, but I'm expecting my $2k in earnest money back asap.

Sigh.  I've never dealt with a 'hot' market before and I'm apparently not well equipped for it.

FireUK

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Re: Buying Over Appraisal?
« Reply #36 on: October 04, 2018, 09:04:54 AM »
Stick to your guns. You'll find the right place soon enough, just keep at it.

katstache92

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Re: Buying Over Appraisal?
« Reply #37 on: October 04, 2018, 12:58:46 PM »
Thanks for the advice all - the unit is not back on the market.  Waiting for them to sign the cancellation and to get my earnest money back.

The search continues.

robartsd

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Re: Buying Over Appraisal?
« Reply #38 on: October 04, 2018, 01:23:55 PM »
They came back saying they would accept $98k but no money (it was only $300) for the response to inspection.  That's still $2.5k over the highest appraised value.

So I sent over the cancellation of the sale with a note saying if they went to the $95.5 then we could stay in business.

Waiting to hear back on that, but I'm expecting my $2k in earnest money back asap.

Sigh.  I've never dealt with a 'hot' market before and I'm apparently not well equipped for it.
I would have set the price they would have to come to to somewhere between the appraisals. I might even threaten to take them to small claims court for false advertising. If you have evidence that they misrepresented the previous appraisal you should be able to sue for your damages which might include: your inspection costs, your appraisal costs, your opportunity costs, and your legal costs to recover your damages. (I'm not a lawyer and don't know what your jurisdiction is, so take this with a grain of salt.)

afox

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Re: Buying Over Appraisal?
« Reply #39 on: October 04, 2018, 03:35:15 PM »
In some states the seller must disclose previous appraisals to future buyers.  Find out if that applies in your state, if so: you have more leverage with the seller since no buyer wants to pay more than appraisal, and the seller was in the wrong to give you a false amount for the $95k appraisal.