Working Through the Real Estate Appraisal Process
Are you ready to buy or sell a house? Even when an offer is made and accepted, a deal could still fall through if you get a low appraisal. In reality, this situation is getting all too common.
Take for example a house that is listed for $400,000. A buyer offers $350,000 and they agree to $375,000. When the appraisal comes in at $360,00, there is a deficit between the buyer’s down payment and the amount the bank is going to lend. Who will have to make up the difference?
Typically what happens is that the buyer and the seller do not want to make up the difference. The seller doesn’t want to come down more on the price and the buyer might not be able to make up the difference. Usually this will cause the deal to fall apart.
Why did I get a low appraisal?
Low appraisals usually come up in a housing market where there is a lack of recent homes that compare to yours (or comps) that have sold. A lack of comps make it hard to give an appraisal of your property and determine the current market value.
If sales are slow, good comps go away fast. A few short sales or foreclosures in your neighborhood and an appraisal can come in anywhere.
How can I protect myself?
What can you do to make sure you don’t get a low appraisal? There are two sides to this so we can give ideas for buyers and sellers.
If you’re a buyer, tell your lender that you want an appraiser that is close by and familiar with your exact area. You can also ask that the appraiser have certifications and be members of professional organizations. This way you know they are staying current on what is happening in the market in your area.
You can also meet the appraiser when they arrive at the home and give some background information on the property. If you have knowledge of recent short sales you can speak with the appraiser. Your lender is forbidden from speaking with the appraiser but you can share information and talk with them.
If you are a seller, get an appraisal before you list a home. Find an experienced appraiser and use the appraisal to set a realistic listing price for your home. You can give a copy of your pre listing appraisal to the buyer’s appraiser.
If your appraisal comes in low, you can challenge it. There’s always a chance the appraiser or a supervisor will take into account new or overlooked information. You may have to file an appeal but your lender can help file a request on your behalf.
If you are prepared for this scenario, you don’t have to let a low appraisal ruin your deal. By getting an appraisal when you go to list your home, finding a qualified appraiser and giving the appraiser as much information as you can, you can do your best to make sure you get the best appraisal possible.