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House appraised lower than purchase price- now what?
We are under contract on a great house and had a closing date set for Monday the 18th. Our appraisal came back today and the house appraised at $4,000 less than the agreed-upon purchase price. We were told that either the seller has to agree to sell to us at the appraised price or we have to make up the difference in our down payment.
I know the sellers are motivated- one of them has a new job 90 miles away and is commuting every day. When we saw the house the first time, they were out house hunting in their new town. We also know that their asking price (our purchase price) was quite a bit higher than what they paid for the home a couple of years when they bought it- they bought it as a foreclosure and did a lot of updating to it.
Has anyone been in this situation before? How did it work out for you?
I'm just about sick over this... 
First step, conquer the crib. Then, the world!
Re: House appraised lower than purchase price- now what?
Yes, those are your choices - I'd start by asking the sellers to drop their price $4,000. If they don't agree to that then you need to decide - are you willing to bring extra cash to the table to get this house? $4k seems pretty small in the scheme of things so if they are already commuting and looking at houses in their new town, it sounds promising that they will drop the price to the appriased price.
The second part about how much they paid is irrelevant to how much it's worth today. By the end of this year (18 months of living here) we will have put about $55 - 60k into our house. If for some reason someone thought they should buy it at the same price we paid or slightly more than we paid, I'd be pissed.
Thanks! And I should clarify that I definitely don't feel that we shoudn't pay as much as they want just because they paid a lot less ($25,000) two years ago. They did get an awesome buy on it, and the updates they did (paint, new hardware in the bathrooms, cleaning up the landscaping) made the home much more attractive inside and out. So if you do sell your home some day all your hard work will definitely be noticed and appreciated!
I think I was just trying to say that I hope that they will feel that they are still coming out quite a bit ahead even if they sell the house at the appraised value. Best-case scenario, right? 
Also- can anyone tell me the difference between a home's taxable value and the appraised value? In our case the taxable value for 2012 is $10,000 higher than the appraised value, per the county assessor's website. As an interesting aside, we found out after talking to our REA tonight that the woman who did the appraisal is the wife of the county assessor. Hmm!
Some communities, like in NC where I am located, only do an assessed tax value every 4-8 years. 8 years! A lot can change within the market in that amount of time. The last time our houses were assessed was during the boom in 2008 before the market crashed. There are a lot of inflated tax values now as compared with the appraisal value.
Also, an appraisal is not only based on the condition of your house, but the similar houses in your location that have sold recently. Their condition, location and price all help determine how much your home is worth as well as the stability in the location you are buying within.
Congrats on the new home. Your negotiations should be that the seller will agree to sale the home at the lower price of $4000. If they were to put the home back on the market the seller will face the same delimea with the next buyer financing company. Also you are ready to buy now and if the sellers were to put the house back on the market it could take months before they can find another willing able buyer that is ready to actually close. What this means for the seller is more mortgage payments, insurance, taxes, and up keep during this time frame of waiting. Its a no brainer for the seller to lower the price $4000 when they look at what it would cost them if you didnt buy. DO NOT agreee to pay the additional 4k. Negotiate tuff and that house will be yours at the better price. Good Luck!
I have been in this situation twice this year. The first house was one we had built with a production builder, it appraised $20k less than purchase price. A second appraisal was done and it came back $45k less. The builder refused to budge and we walked (we did get our deposits back).
House #2 was priced at $262,500 and we contracted for $260,000. Appraisal came back at $248,000. Sellers refused to discuss a reduction in price. We terminated the contract and walked.
The good news is that your difference in appraisal/contract might be easier to accept for the seller. Best of luck.