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Experienced home sellers know that reaching a sales agreement with a potential buyer can be just the start of the negotiation process. There are often inspection issues to resolve, among other items.
One particular negotiation point which can present difficulties for both buyers and sellers is when a home’s appraised value falls short of its contracted sales price
Sometimes, this happens because the home’s price was inflated. Other times, it’s the result of a faulty appraisal.
As a home seller, there are some common appraisal problems of which you should be aware. Here are some of them, and how to seek remedy so that the home sale process remains smooth.
An appraiser will assign your home’s value based on comparable properties and recent sale prices. However, some homes — notably those in foreclosure; sold via short sale; or which were abandoned — sell at a discount as compared to non-distressed properties. An appraiser may want to ignore these types of comparable homes, or make proper valuation adjustments.
Ignored market conditions
The housing market can improve quickly as we’ve seen in some U.S. markets since 2011. Appraisers, though, may not consider a local market’s demand and its rapidly rising prices — especially after the recent downturn from last decade. If an appraiser is not taking into account such information as multiple offer situations, low local inventory, and days on market, your home’s appraised valuation may be affected.
Slow turn-around time
Appraisers operate under strict time guidelines. When an appraisal takes more time than usual, therefore, it’s often the result of the appraiser’s uncertainty on the home’s value. This is a common scenario for unique homes for which comparable properties are scarce. It can also be the case for when an appraiser is unfamiliar with your area. If an appraisal takes an inordinate amount of time to complete, consider asking your REALTOR® to review the figures.
To err is human and appraisers make mistakes occasionally. How you handle those mistakes as a seller can be the difference between a sold home and a canceled contract.
So, what can you, as a homeowner, do if your home does not appraise at the purchase price?
While not common, sometimes appraisers could make mistakes based on their inexperience or error in judgment. If you believe that your home was appraised in error because of the incompetence on the part of the appraiser, consider getting another opinion.
The buyer’s lender will likely appoint an appraiser for the home, which the buyer will have to pay for. But if you want to hire an independent appraiser, you’ll have to pay out of your own pocket. If the appraisal comes back at a higher value compared to the original appraisal, you may have more negotiating power to keep the purchase price as is.
If the buyer is truly in love with the home, you may be so inclined to ask the buyer if they would be willing to make up the difference between what their lender is willing to loan them and the purchase price of the home. In this case, the buyer would need to have enough money left over to cover the difference.
Of course, the buyer will need to feel confident that there is indeed value in the home, no matter what the appraisal says. As long as the buyer is able to beef up their down payment, the lender should be satisfied.
If both you and the buyer still want to carry out the deal despite the low appraisal, you may want to consider splitting the difference. You could lower the price of the home slightly, and the buyer could meet you in the middle by adding a bit more to the down payment.
If you’re OK with the lower amount that the appraisal came back with, you could let your home go for that amount. While this is not ideal, it would be the quickest way to bounce back from a low appraisal and still sell your home in a timely manner. This would only be an option if you’re OK with the lower price and if you’re in a bit of a rush to sell your property.
If the buyer is not willing to put any more money into the deal and you’re not willing to let the place go for less than what you agreed to sell it for, you may want to put the home back on the market and seek out a buyer who’s fine with putting in a little more in the pot.
You’d be taking some chances here and would have to go through the marketing process all over again. Plus, this would take up more time, so you’ll need to be sure that you have the extra time to take this route.
Are you curious about mortgages, or are you ready to apply for one to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.
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