In a fast moving real estate market, it is not uncommon to run into appraisal issues. Especially when markets are in flux, shifting from a buyers’ market to a sellers’ market, the appraisers are challenged to keep up with rising values. Add to that a conservative lending environment, which places very strict guidelines on the appraisal process, and that can be a recipe for trouble. Appraisers are required by underwriters to look “backward” for their comparable sales (the 3 most comparable sales in the past 90-180 days, for instance), and-resized-600.jpg?width=294&height=196&name=mp900442294_(1)-resized-600.jpg)
pending sales and active inventory that may be priced higher can only be used as a compensating factor.
If you are getting financing, an appraisal will be required to determine what we call the “loan-to-value” ratio. That is the reason that a low appraisal can be a problem, as it means that the borrower will have to put down additional funds, in order to keep the loan to value ratio in line. In order to protect the buyer, most contracts have language that makes the sale contingent on a favorable appraisal. If the appraisal comes in below the sales price, then the buyer has the option of terminating the contract and having his earnest money returned.
There are, however, other options.
1. You can put down additional funds toward the down payment, and effectively pay above the appraised value. This would rarely be advisable, but in some cases with a unique property, the buyer may want the home for personal reasons regardless of market value.
2. You can appeal the appraisal. Appraisals are part art and part science, and it’s important for buyers to understand that. Each appraiser selects comparable sales and makes adjustments based on his perspective, and a case can often be made for using different comparable sales and/or making different adjustments. The appeal process can be time consuming and complex, and so you should definitely consult with your Liz Moore agent and lender before heading down that path.
3. The most common response to a low appraisal is that both buyer and seller return to the negotiating table. Sometimes the seller will lower the sales price to the appraised value, and sometimes – if there are extenuating circumstances, the buyer may agree to a compromise in either the sales price or terms of the agreement.
It is important to work with a REALTOR who is familiar with, and has expertise in, the home buying process. There are many things that can be done to protect your interest and work through a low appraisal. We'd be happy to connect you with an agent who can help you!
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