5 Next Steps When theAppraisal Comes in Too Low
When recently surveyed, overa third of Realtors reportedhaving had one or more homesale contracts fall apart this pastyear. Autopsies of these deaddeals often surface a truly lethalculprit: appraisals that come inbelow the agreed-upon purchase price.
1. Appeal errors or bad comps to the appraiser.Read the entire appraisal report, cover to cover. Seeif you spot any errors it’s not at all unheard of for anappraisal report to miss a bedroom or underreportthe home’s square footage. The trouble is that whatstarts out as a clerical error can often result in theapplication of the wrong “comparables” when itcomes time for the appraiser to pick the propertiesto use as benchmarks of your home’s fair marketvalue.
2. Ask for a second opinion. Particularly in cases oferror or bad comps, if the appraiser ignores yourrequest to revise the report, you might need toescalate your request to the lender itself. Here’swhere it’s important to be working with an expertagent and mortgage pro with a great reputation; ifthey believe strongly in your case, they may be ableto plead it to the underwriter and request that asecond appraisal be done. The idea here is that ifthe second appraisal backs up yourarguments, listing the correct property details ormore accurate comparables, the lender is muchmore likely to exercise its discretion to deem thefirst one a dud and go with the second opinion.
3.Renegotiate.Low appraisals disappoint everyonearound the negotiating table. If the sellers have theleeway (read: equity), they might agree to bring theprice down to the appraised value or near enoughthat the buyer feels comfortable putting some extracash into the deal to close the purchase price-to-appraised price gap. Some buyers refuse to ever dothis on general principal, as they feel like it’soverpaying for the property. Others realize thatappraisals may come in low for reasons lessindicative of the property’s value, like a lack ofcomparable sales in the area, and figure that to getthe home they want, they’re willing to kick in a littleextra dough.
4. Pay the difference or split the difference. On theflip side of renegotiating is reconsidering yourpersonal position. If you’ve been house hunting fortwo years, forgoing low rates and the tax andlifestyle advantages of owning your home, andyou’ve finally found ‘the one’ in greatcondition, perfect location you might think long andhard about whether you are willing to pay thedifference between a low appraisal and thepurchase price. This is especially so when the gap issmall and you have the cash, or when you know theseller is barely breaking even on the deal or hasoffered to split the difference with you.
5. Change lenders. Mortgage banks have morecontrol when it comes to choosing appraisers thanmortgage brokers do. (Fortunately, manyexperienced local mortgage brokers work forcompanies that also have banking divisions, andmay be able to process your loan through thatdivision in an effort to get your transaction a freshstart and work around a low appraisal. Ask yourmortgage broker if their office has a bankingdivision, if you’re not sure.)
Realtors: What are some other low-appraisalworkarounds that have worked for you and yourclients? How do you help buyers and sellersdecide what moves to make when the appraisalcomes in low?
Randy BettInvestment Realtor/Author/InvestorReal Estate Professionals Inc.Better Group Real Estate202-5403 Crowchild Trail NWCalgary, AB T3B 4Z1Phone:403-774-7464 Ext:1Fax:403-208-0082Toll Free fax:888-711-6801