Low Home Appraisal? What Do You Do Now?

July 20, 2010

by christiborden

So everything seemed to be going well in the home selling process…

  • Listed with your favorite Realtor – Check
  • Home Staged to attract buyers – Check
  • Good showing traffic and feedback – Check
  • Ready, Willing and Able Buyer presents an offer, which is negotiated and accepted – Check
  • Inspections are performed and repair items negotiated – Check
  • Appraisal is performed – Check
  • Appraisal comes in lower than acceptance price… WHAT? Back up a minute. How can that be? Shouldn’t a home be worth what a ready, willing and able buyer is willing to pay for it?

Not according to the buyer’s lender. In fact, the home needs to appraise not only at what the buyer is financing but the entire sales price as well. Why? Fraudulent loans and appraisals have caused such a backlash that lenders are very cautious and need to make sure their collateral (the property itself) is at lease worth the indebtedness so that they are covered should the buyer walk away without benefit of paying off the loan.

So, now what do we do?

Appraisals are really just the opinion of that one person and they are only human… mistakes are made. If the appraiser is unwilling to reconsider or revise, then you (the seller) can do one of three things.

  1. Accept the appraisal value and lower your sales price to match.
  2. Negotiate with buyer to pay either the original sales price regardless of appraisal or to meet somewhere in between (may mean buyer has to bring more cash to the table depending on his loan).
  3. Let buyer terminate (could be with a return of earnest money depending on the contract terms) and go back on the market hoping for a better appraisal with your next buyer. One item to note, if the buyer had an FHA loan, this appraisal stays with the address for any future FHA loans within 6 months).

How can we insure a good appraisal?

In today’s lending environment and with the HVCC  (Home Valuation Code of Conduct) rules in place, the lender has no control over who handles the appraisal. But there are things you can do to increase the chances of the property appraising if it is indeed selling for or below market value:

  1. Make sure property is in good working order on day of appraisal.
  2. Leave behind a list of any and all upgrades to the home that you wish the appraiser to consider.
  3. If there were multiple offers on the home which may have driven the sales price over list price, leave data supporting this such as copies of other offers to show a demand for this property over and above the competition.
  4. Provide comparable properties for the appraiser to view in the event he or she is not familiar with the community. While the appraiser may not use these exact comps, he or she may find it helpful. I find it is always better to offer the assistance up front prior to the appraisal rather than afterward so that there is no hint of impropriety or influence.

In our market, the majority of appraisals turn out as they should. However, as every Boy Scout knows… Be Prepared!