Low Home Appraisal Got You Down?
With the current red-hot real estate market , it’s not unusual for some home appraisals to come in lower than expected. That’s often because appraisals can’t keep up with how quickly comparable homes are selling. While it is a seller’s market, desirable homes that end up going through a bidding war, drive the purchase price up. This also makes finding comparable properties difficult for appraisers. You do still have a few options available when the appraisal amount is lower than anticipated. Let’s explore some influencing factors.
Appraisal(comps) Vs. Comparable Market Analysis(CMA)
Home appraisals are based on comparable home sales(comps) in the area. They aren’t the same as comparable market analysis (CMA) figures, which is how the real estate agent may have come up with an asking price(educated rough estimate). An appraisal however, is conducted by an expert licensed in the field. The appraiser is paid a flat rate for services, while a real estate agent receives a percentage of the purchase price.
Receiving A Fair Appraisal
If the original appraisal seems too low, it is possible to appeal it or get a second appraisal. The buyer understandably will probably refuse to pay for a second appraisal, so the seller should be sure that a second opinion is needed. If the home is in an area or neighborhood with fairly similar constructions and amenities, it’s more likely the valuation will stand because the “comps” are easy to determine. In some instances, a custom or historic home may have few or no recent comps in the area, but most homes will. Work with your Good Thing Realty agent and your loan officer to find the latest comps when challenging an appraisal. The appraisal is a detailed document and lists any “comps” used, so study it carefully for any incorrect or missing information. The appraiser could miss something and may not note any extensive remodeling that may increase value. Appraisers may not include the correct square footage or the acreage of the property. They may mistakenly leave out a fireplace or other higher-end amenity and a provable error like this, gives you the right to appeal the appraisal!
Negotiation
The simplest option may be for the seller to reduce the price to the appraised value if the appraisal price isn’t too far below the asking price. Sometimes just a $10k reduction on a $500k asking price speeds the process right along! Remember, the appraisal price affects what any mortgage lender will loan on the property. Sometimes the buyer and seller are forced to compromise, with the seller accepting a lower price, or in the alternative, the buyer providing the difference between the appraisal and the asking price.
WhenTo Walk Away
If a seller remains unrealistic about the home’s valuation and refuses to budge, the buyer really has no choice but to walk away. Even if the buyer does have the cash to make up a significant difference between the appraisal and asking price, why would they spend that money? Even if the buyer intends to live in the home “forever,” life changes happen and they could lose money when they sell. Don’t be afraid to walk away from a good property if the seller is being unreasonable and won’t negotiate the asking price.
Contact An Attorney
Buying or selling a home is stressful, even if the entire process goes relatively smoothly. While Good Thing strives to make our real estate sales as smooth as we possibly can, it’s crucial to obtain legal advice from an attorney experienced in real estate law.