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My Appraisal Came In Low What Do I do?

September 9th, 2014 | Written by | Market Reports for Parker Colorado, Parker Neighboring Communities, The Timbers

What happens if your appraisal came in low? What now?

So, you received a great offer on your house and everything was going along perfectly and BOOM the appraisal came in low. First there is confusion and denial then anger then sadness. If you have a good Realtor then you should have options.

The definition of Market Value is basically what a reasonable seller is willing to sell their property for and what a reasonable buyer is willing to pay for that property. Caveat: If you are using a loan to buy the property is also means…What the appraiser is willing and able to appraise the property for. If it doesn’t appraise the bank will not loan you money for above the appraised value. End of story.

How is this happening? Low inventories and pent up demand left buyers no choice but to offer higher and higher for available homes. This sent sellers into a tail spin with dollar signs in their eyes. It all created the perfect storm and sellers were plainly asking more for their homes than they were sometimes worth and buyers were happy to pay it. Appraisers fearing a backlash from banks were struggling to support occasionally over inflated values. It’s hard to know what to do when your appraisal came in low.

Home Buyers Tips for a Fast Moving Real Estate Market

What is a comp? A comp is generally a “like kind property” located within the same area or neighborhood as your property. Like kind means very close in the number of bedrooms, bathrooms, square footage etc… Finally, a comparable needs to have sold and closed hopefully within the last 6 months. Occasionally an appraiser will be able to use properties that have sold outside the 6 month window if no other recent sold comps exist.

What is the subject property? That is the property you are selling. It will be compared to the comps or comparable properties.

Save your self this nightmare 99.99% of the time and know the value of your home well before you list it for sale. Find out your market value right here. It takes about 30 seconds to fill out the form. This is as close to an appraisal as you can get without paying $500. Yes it is FREE. Find out your home’s value here. 

Home values appraisals

Home values appraisals

What to expect in the first few hours after your appraisal came in low.

  1. The buyer will sometimes back out of the contract immediately. If this happens lick your wounds and move forward to find another buyer quickly. I also suggest double checking your true comparables and making sure you have viable comps to support your asking price.
  2. The buyer is still interested but maybe a little scared now. If the buyer is sticking around then you need to move quickly before they get cold feet and leave. Many buyers are deservedly nervous since the appraiser hired on their behalf has just told them the home they loved and wanted isn’t worth what they agreed to pay for it. This is especially scary for a first time homebuyer.
  3. Make sure you have a level headed quick thinking Realtor on your side to help guide you through the process.

Yes you have options when your appraisal came in low.

1. Challenge the appraisal if it comes in low and you believe your contract price can be justified with real comps. You can only do this if the buyer is hanging in and doesn’t back out but do ask for an appraisal review.

2. Have your seller’s agent request a copy of the appraisal and very carefully review all the comparable properties used in the appraisal. Each property needs to be checked thoroughly. Appraisers are human and sometimes not very experienced so mistakes are common. More on nightmare appraisals mistakes later in the post…

3. Depending on the loan type you may only have a few days to submit new comps and get the appraisal reviewed. TIP: very seldom will a bank over ride the appraisal and accept a higher value without going through a full review of the appraisal with the new comps you submitted. I have had banks overturn it when there were glaring issues with the appraisal. Rare but it can happen.

4. You can accept the lower appraisal and lower the contract sale price to the appraised value and proceed to closing. Often times in order to get a deal done this will be the easiest way to proceed. I don’t see this as a bad thing in many cases. Why? If you look at the appraisal and it looks accurate then you can soundly sleep at night knowing you sold your house for absolute top dollar. Some sellers have a hard time with this because they feel like they lost something but in reality they never had it to begin with. I know it’s difficult to swallow but in many cases it is totally true.

5. In some rare cases if your house is the total “It House” and everyone wants it then you can tell the buyer “hey if you want this home it costs the agreed upon price and you must come out of pocket to pay the shortage. Yep this happens more often than you would think. The buyer has to be a super strong buyer with deeper pockets and their lender may need to agree to it. All they are doing is putting more money down on the property but the lender would have to approve.’

6. All of the above is usually a lot easier if you have a cash buyer and they don’t order an appraisal or could careless what the appraisal says. Yes this happens.

Nightmare appraisal situations I’ve experienced in the Denver real estate market.

These are just a few things to watch out for.

  1. Hope you get an appraiser that is familiar with your area and property type. I once had an appraiser show up to appraise a horse property in Douglas County, Colorado that was from downtown Denver and didn’t know a barn from a loafing shed. He had no idea what the difference in a domestic well and household well was and didn’t care to learn. There is a huge difference in wells if you want animals or outdoor water usage in Colorado and it can dramatically affect the property value.
  2. I recently had an appraisal come back $40,000 under contract price. The appraiser used 3 very good comps but the typos and and errors were horrendous. One of the comps he used said a comp house was backing to dedicated open space. The home was actually totally surrounded by homes with open space nowhere in sight.
  3. In a good market with plenty of comps I had an appraiser use a home totally outside the subject property’s neighborhood when there were 6 good comps inside the same neighborhood that he overlooked. Once we made the change and pointed out the mistake the bank overturned the appraised value and the property closed.
  4. The biggest mistakes I see very often is with custom built homes. Appraisers that don’t know custom homes will often times use track built homes as comps for a custom built home. This creates huge problems.

There are many ways to fight an appraisal that come in low. Being prepared ahead of time is the number one thing you can do to avert this problem.

Please call me if you are considering selling your home. I know home values and how to price homes so they sell at top dollar and usually without appraisal headaches. Steven Beam is a Realtor that lives and works in Douglas County Colorado. 303-941-4663. Let me know what i can do to help.

 

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Steven Beam, Realtor, CRS
303-941-4663
18551 E. Mainstreet Suite 2-A
Parker, CO 80134
Parker Colorado Real Estate

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