Selling a home is an exciting time in the brisk market found in many parts of the U.S. You stage your home and prepare for the first weekend of double digit home showings. You review the multiple offers you received, trying to pick the best one-with the terms that fit your next move and the price that you want, sometimes even more than you initially thought your house was worth. You make it through the inspection, after the buyer asks for several repairs and you are busy packing, getting ready to transition to your new home. The phone rings and it’s your agent; she tells you that your home didn’t appraise for the price that was agreed upon. You vaguely hear “the deal is falling apart” and “what do you want to do?”
Home values seem like a moving target, with prices greater than the month before in most neighborhoods throughout the metro area. There are multiple offers more than half the time real estate agents present offers, so balancing capturing the property and making sure they don’t pay more than what it is worth is top of mind for most buyers.
What is An Appraisal Anyway?
A home appraisal is an independent, unbiased opinion of the value of the home. They will look at all of the aspects that contribute to the value of the property, including the proximity to amenities as well as the overall condition of the property. They will also provide a report on the overall market conditions, if the property is in a declining market or a healthier, more stable one. The appraiser is generally hired by the lender, and paid for by the buyer, to protect the interests of the bank who is providing the funds for the great majority of the purchase price. The appraisal isn’t an inspection, but the appraiser certainly will report if they can see obvious deficiencies such as a leaking roof or issues that might impact the value of the property. Some types of appraisals, like those for FHA buyers, have more stringent property condition requirements and provide a more detailed report on the conditions.
Doesn’t the Listing Agent Do That?
The listing agent prepares a comprehensive Comparative Market Analysis (CMA). It compares your property to those that have sold close to yours. It will take into account the location, age, condition and size. A CMA is not exact and is typically presented with within a high and low range. The appraiser will come to an exact valuation, using detailed adjustments for various differences between sold properties and your own.
What Sellers Can Do to Avoid Appraisal Issues:
1. Accompany the appraiser when he or she visits your home
That is right, contrary to what you may have heard, sellers are welcome during the home appraisal process. No one knows the home better than the seller; they know what improvements were made, the condition of the home when they purchased it and what they spent on improvements. Sellers might even know other things that are going on in the area that might affect value such as construction projects or new amenities. Be sure to point out location features such as views and cul-de-sac locations. Sellers are welcome to answer questions and point out improvements, but sellers should never ever try to coerce the appraiser or make threats if the appraisal doesn’t come in high enough. If you can’t be present or don’t want to, make sure your agent is fully aware of all of the improvements made to the property, especially those that aren’t visually apparent during the walk through.
2. Provide the appraiser with comparable sold homes
Make sure that your agent provides the appraiser with appropriate comparable sold properties. You may not be aware that you can use a home that is under contract, but not yet closed, as a comparable. You can also search non-MLS oriented sources for comparable properties, such as public records, for sold-by-owner properties and even new construction. Ideally they cannot be greater than 6 months old, three months being ideal.
3. Provide a list of upgrades to the appraiser
It is perfectly acceptable to provide the appraiser with a list of features or upgrades in the home. In fact, it is helpful when the appraiser goes back to his office to prepare the paperwork. Be sure to include items that might not appear in the appraisers photograph such as central air, the efficient HVAC system as well as the obvious solid surface countertops and the finished basement. I have often looked at appraisals where the appraiser forgot a bathroom or included a fireplace when there wasn’t one.
4. Correct public records errors
Be sure to check public records for accuracy and provide corrections to the appraiser. So, if public records indicate that 50 percent of the basement is finished and you really have 80 percent, be sure to point that out. Provide any documentation supporting finished and total square footage including previous appraisals or architectural prints.
5. Provide the appraiser all of the offers
Many times, it is recommended that you give the appraiser a copy of all the offers presented on the property to demonstrate the market demand and the willingness of buyers to make offers on your property. The exception to this is if most of the offers were significantly lower than the one you ultimately picked. That might actually lower the appraiser’s opinion of value for your home.
6. Don’t pick the buyer who submits the highest offer
A buyer who submits an over asking price offer, but doesn’t agree to make up the difference between the appraised value and the offer price, might actually be hoping for the appraisal to be an issue and try to “force” the seller to accept the lower, appraised value. So be sure you review the appraisal terms submitted by the buyer to ensure you take the best offer that will provide you the least chance of having an appraisal issue.
What if my home appraises for less than what I agreed upon with the buyer?
If, after all of your best efforts, the property appraises lower than what you had agreed to with the buyer, you have the right to conduct an appeal. That appeal is conducted through the buyer’s lender, since they are the ones who ordered it and for whom it benefits. The appeal or rebuttal process will be handled by the management group that the appraiser belongs to. You will work with your agent to put together a written rebuttal, with the goal of showing the appraiser why the property is worth more. Be sure to use fact and figures, be tactful and be logical. Stay away from emotions or descriptors that don’t provide value such as “open floorplan” or “light and bright.” You can use alternative comparables, or correct gross errors such as sq footage, as well as market reports demonstrating a trend of how prices have been rising.
Is all lost if the Appraisal Management Company agrees with the appraiser and refuses to raise the appraised value?
No! Most appraisals are independent to that particular lender, so if the buyer changes lenders, a new appraisal will be ordered and many times I see a very different appraisal from a different lender. If you decide you don’t want to lower the price, you can certainly present this to the buyer as an option. Either way, if you decide to relist the property, you aren’t generally required to disclose to the next buyer anything about the previous buyer’s appraisal. Note: this is true for conventional loans, but may not be for FHA and VA loans. Those types of appraisals may actually stay with the property for a period of time, depending on the buyers lenders internal policies.