My home Buyers were under contract for $306,000 and the appraisal came in low at $300,000 – below sales price. That’s $6,000 less that the Sellers are going to net and money they may need in order to make THEIR home purchase.
In this instance, the homes the appraiser chose as comparables were simply not as updated as the home my Buyer was purchasing and didn’t have a similar functional flow. But, how would the appraiser know that? The main reason that appraisals come in low is that appraisers don’t have the same intimate knowledge of surrounding homes that Realtors have.
I consider it “best practice” to prepare for an appraisal, because getting an appraiser to adjust the appraised price after the fact is nearly impossible.
My colleagues and I recorded a video about appraisals that all home Sellers should view. In this 4-minute video, Rich Cederberg, Jeff Dowler, Bryan Robertson and I discuss why appraisals come in low, how to prepare for an appraisal and what to do when an appraisal does come in below sales price.
Prepare for your Appraisal
To prepare for an appraisal, I provide the appraiser with a packet which includes comparable sales that I think best match my listing. In our area, acceptable comparables (referred to as comps) must be plus or minus 15% of the subject property’s square footage, within a mile of subject property and closed within the past six months.
And if there is a comp that APPEARS to be a good comp, but wasn’t as updated or had a flaw in the floor plan, I write a note to the appraiser who never had the benefit of being inside that home. Yes, the square footage and number of bedrooms may be exactly the same, but the garage was in the front of the home and you had to walk through the carpeted living room to unload groceries in the kitchen – this home is not comparable to ours!
When appraisals come in low and below sales price
I also provide the appraiser with an exhaustive list of improvements that ADD VALUE to the home – and associated costs for those improvements. This really provides the appraiser the MEAT needed to justify the home’s value. You bet a new roof, new kitchen countertops and new hardwood floors add value, as does added insulation or electrical updates. The more you can document, the better. Without this information, the appraiser must rely on descriptive text in our MLS (Multiple Listing Service).
If square footage is questionable, I ask my Sellers to pay $75 for a square footage appraisal. That square footage is almost always higher than the amount in court house records, so it’s $75 well spent. If that’s available, I provide that for the appraiser also.
If all of that fails, and the appraisal still comes in low, the transaction can be salvaged if everyone chips in. Depending on the circumstances – and the amount of the gap – the Buyer may be able to get by with a little less closing costs, the Lender may be able to issue a credit and some repairs may need to be postponed. If THIS transaction fails, what OTHER transactions will fail? Everyone must look at the big picture.
And sometimes we have homes we just know ahead of time are not going to appraise for the sales price. In one instance, my Seller had over-remodeled for her neighborhood. We all knew that the comps would not support the contract sales price, but the Buyers didn’t care – they loved the home. They were only financing 50% of the cost of the home, so the Lender didn’t care either. But we all (Buyers, Sellers, Realtors) had the discussion of what to do if or when the appraisal comes in low on day one.
If you are ready to put your home on the market, select a Realtor who will be pro-active about getting your home to appraise – learn more about my listing services and do call! 918-852-5036
Content written and published by Lori Cain.