In this accelerated market homes are being bought and sold at a rapid pace and much of market data is being pulled ahead of time, off pending or homes just on the market, so historical data is struggling to catch up and this creates broad differentials between an agreed-upon price and the appraised value. There is a greater risk factor involved when offering over asking price and this is happening every day in our market because of very low inventory.
There are things we as Listing Brokers can do ahead of time along with the seller to help alleviate this “risk”
1. For a seller who wants top dollar for their home they need to make sure they have the home in the best condition possible. To just throw it on the market and expect to get top dollar and to have it appraise at that is just not going to work. This simply wastes everyone’s time and money.
2. The next thing you can do as a seller and we as your seller’s broker to prepare is - Putting together a good Comparative Market Analysis so we know confidently what your home will appraise at. Also taking into account the special features in your homes situation to put value to that as well. Then set that price as the asking price when we put it on the market.
3. Now be ready in this extremely low inventory market to get multiple offers that will more than likely push the selling price higher than the CMA and put an appraisal at risk of being lower than the accepted sales price. When you accept an offer over asking don’t just expect that the appraisal will come in at value. Discuss this ahead of time with the buyer’s broker and plan for this contingency. Is the buyer prepared to make up the difference is the seller prepared to adjust the sales price. We can’t always hold out for that all cash offer – that isn’t necessarily a reasonable expectation as a seller. So be prepared and keep communication lines open.
4. Communication is often a breaking point for the expectations of what the home is worth. If there’s something unique about it the property this really needs to be communicated to the appraiser. An owner and the owner’s broker can share this when the appraiser call’s or comes to see the home to do the appraisal. This is a high priority and very important and needs to be talked about with all parties ahead of time. And be prepared for in advance. Right now we need to be doing our part to help the appraisal do the best job with theirs.
If all else fails and the appraisal still comes in low what can we do?
1. We can ask for A Reconsideration of Value Request, or ROV, this request encourages the appraiser to review the work based on additional appropriate data submitted which we as cooperating brokers for the buyers and seller gather to present to the appraiser. To consider an ROV, appraisers are most often willing to review and consider comps that are more recent, closer in proximity and similar type and size. And if we have done our homework we have this information ready to present.
2. The Buyer can be prepared to bring money to closing to make up the difference in cash. If they are prepared to do this, and feel confident that the investment still makes good financial sense then this is a good option and we discuss this ahead of time with our Buyers, but we don’t always representing a buyer in the transaction sometimes we represent the seller, so it is something we recommend with that the Selling broker talk to their buyer about.
3. You can ask the seller to carry a second mortgage to make up the difference between the low appraisal and the purchase price. If you want to avoid having to make two mortgage payments ask if the seller will agree to a balloon payment after the equity in the property increases to the point you can do a cash-out refinance and in the meantime set aside extra money for this upcoming balloon payment.
4. If you are concerned about a low appraisal be sure to help make the appraiser’s job easier by when he comes to do the appraisal having a list of property comparisons that were used to come up with the list/sales price and amenities that bring the value of this home higher that you can offer to give to the appraiser.
5. If all else fails you can ask the lender to order a second appraisal. The lender may not always agree with this request, and the buyer has to be willing to pay for this second appraisal or you can ask the seller to split the cost of the second appraisal or simply order an independent appraisal and split that cost and then allow the lender to compare the two. But talk to the lender first because to make sure they will consider a second opinion.
6. Compromise on the price. The odds are the seller wants to sell as much as the buyer wants to buy. Asking the seller to meet in the middle is fair, especially now that the seller knows what the property is really worth.
7. This doesn’t always work – I just had a recent one where the seller was not moving out of the area and they listed their home for a high price so they could move and buy a larger home at an even higher price- so if they didn’t get exactly what they listed for they weren’t willing to sell. My buyers did not know this and made an offer at full price and the appraisal came in 40k low – my buyer had enough cash to come back with an additional 20k and meet in the middle but the seller would not accept.
8. Then your last resort is to exercise the appraisal contingency in your purchase contract, get your earnest money fully refunded, and walk away to find another property. Which isn’t always easy in today’s market.
There’s an expectation out there to get everything done quickly, Everybody wants to rush this industry when most people especially lenders, appraisers and builders are all at or above capacity. So it’s just not possible – there is not enough time in the day to meet all the rushed deadlines. Most are working seven days a week and doing everything that they can to keep up with the surging demand. Things are taking longer so Patience is Key!