What Happens if the Appraisal is Low?
Low appraisals (appraised value coming in lower than the agreed upon sale price) are becoming more common and will probably remain a problem for quite awhile to come. There are many reasons why appraisals can come in low, and it is usually NOT because the buyer was prepared to “over pay” for the house.
I used to define the word “appraisal” as an opinion of value. Back in the day the loan officer got to choose the appraiser; an appraiser on that lender’s approved list of appraisers. Most of the time a local appraiser was used, and appraisals were usually pretty accurate. In fact- contrary to recent pundit opinion- many appraisals tended to come in lower than they should have. Most of the time, the appraiser would justify the sale price, even if the buyer was buying the house at a bargain price.
Today I define the word “appraisal” as an opinion of value derived from data that fits a particular lender’s criteria. Also, because of fairly recent legislation (over the past couple years) the choice of the appraiser is taken away from the lender, and I have been seeing a lot of out of the area appraisers on my listings and when representing the buyer. On a recent purchase my buyers ended up paying for 2 appraisals- both licensed appraisers, both appraisals were within a week of each other- one came in at $300,000 and one came in at $362,000.
Buyers and sellers both want the house to appraise. Buyers are represented now ‘days, and their agent should advise them if they are over paying. Buyers are more savvy and educated than in the past, and by the time they make an offer they know what a house is worth. But the appraisal is usually needed to obtain a mortgage.
So what happens when the appraisal comes in low?
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The seller can come down in price to match the appraised value
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The buyer can pony up the difference
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The buyer and seller can settle somewhere in between
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The buyer can back out and the house go back on the market
The above scenarios assume the purchase agreement stipulates the house must appraise for at least the sale price. The purchase agreement I use lets the appraised value become part of the negotiations. For example the buyer may offer to pay $200,000 for a house but is contingent on the appraiser coming in no lower than $190,000. This can be very useful in a multiple offer situation.
There is no law that forces a seller to come down in price, just like there’s no law that forces the buyer to go through with the purchase if the appraisal is low. Some sellers can’t come down any farther and sometimes the buyer just isn’t able to pay the difference. This can be a real problem when seller concessions are needed.
Bottom line is: appraisals come in low way too often and there is no right or wrong way to resolve the problem. BUT don’t assume the seller will automatically come down in price because a third party doesn’t agree with the buyer or seller on the value of the home.
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Jackie Hawley
Keller Williams Realty
cell: (248)736-6407
Jackie@JackieHawley.com
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[...] Comments « What Happens if the Appraisal is Low? [...]
What ever happen to the definition of value: What a seller is willing to sell and a buyer is will to pay is the value? You are right on with your information. However let me share a little more information about why appraisals are not coming in at value.
1. Appraisers are just not doing their job! It is easier to do a bad job and move on to the next order than argue with the underwriter about why he/she justified the value.
2. Concessions are making it very difficult for an appraiser to justify the value. I have talked with a couple appraisers who say they are taking the concession right off the value at the start.
3. Lenders have put huge pressure on appraisers almost to the point of rewarding them for a lower value. I am talking about the largest lenders (Chase, Bank of America, Well Fargo).
4. Appraisers are getting half the amount they use to get for appraisals because of the HVCC. An appraiser use to get the full amount $375 and now because the government set up a management system in place, they get $200. Appraisers have to do twice as much work, for the same pay.
5. Appraiser are not properly making adjustments for updates. An updated kitchen on average costs $30,000, above average landscaping cost $10,000, upgraded lot location can be worth $25,000. Do you think this is shown on the appraisal?
6. Appraisers are using Bank owned homes and short sales as comparable. How can someone compare a distressed home with a well-kept private sale?
I use a local lender who appraises the property before there is ever a buyer. This way the seller and buyer know the appraised value even before an offer. This way there is never an issue with appraisals. The best part the lender does this for free!
In the end my recommendation is to use another lender. Find a lender that uses local appraisers and not one they are going to pull from a random list. Use a lender that has local underwriters and never use a lender that has an underwriting department for just appraisals.
Low appraised values are killing the market. It might not sound like a big deal when a couple sellers give in on $5,000 here and $10,000 there. However when thousands of sellers are doing these across Michigan it become a problem for all of us!
[...] What Happens if the Appraisal is Low? [...]
[...] What Happens if the Appraisal is Low? [...]
[...] What Happens if the Appraisal is Low? [...]
[...] What Happens if the Appraisal is Low? [...]
[...] What Happens if the Appraisal is Low? [...]
[...] What Happens if the Appraisal is Low? [...]
It’s always frustrating, if not maddening, when the appraisal comes in low. Buying a home is very emotional for buyers and sellers, and the last thing anyone wants is some appraiser telling the parties involved that the home isn’t worth what they agreed upon. Personally I don’t know of any appraiser who likes coming in low on the sale of a home; frankly it’s a major headache. And by the way, I do believe that when buyers and sellers come to the meeting of minds on price, that they determine market value.
The only thing I would like to add is for all parties to get involved before the appraisal is completed. Have the latest and greatest comparable properties available for the appraiser. If it’s a complex floor plan have the blueprints available. Ask or send the appraiser an email letting them know that you’re willing to help with any questions, I’ve never really liked having a Realtor follow me around a house telling how great the house is-and I sold real estate for 12 years. However, I’ve always preferred to have the homeowner home in case I have any intimate questions about the home.
Good Luck!
[...] What Happens if the Appraisal is Low? [...]
[...] Before we make an offer on a short sale listing, I will do a detailed market analysis on the house. There’s no need to make a low offer that you can’t or won’t move off of if the bank won’t accept that low of a pay off. There’s also no need to make an offer so high that your lender won’t approve the mortgage due to a probable low appraisal. [...]
[...] Before we make an offer on a short sale listing, I will do a detailed market analysis on the house. There’s no need to make a low offer that you can’t or won’t move off of if the bank won’t accept that low of a pay off. There’s also no need to make an offer so high that your lender won’t approve the mortgage due to a probable low appraisal. [...]