Should You Price to Ward off Appraisal Problems?

Hi Jennifer - If only my crystal ball would stop fogging up!

Hey, Jennifer.  I see your point and it makes sense.  Appraisals can be tricky topics.  One of the contracts I've seen in this part of the country states that if a house doesn't appraise at or above contract price, the contract is void.  Silly contract...

excellent take.  I agree with you on this. I would say to address the appraisal issue if/when it comes up and get top dollar for your client, especially in this housing market.

Hello Jennifer, I agree with you that some homes may look like other comps on paper but, when you get inside you can instantly feel that their is more value in this home than the others.  Thus, a higher marketing price is reasonable.  Also, please don't forget the beloved Cash Buyers that know good value and often do pay for it.  John

Jennifer -

Great Post!

Although I generally agree with you, I think you have to understand the current reality of the market.  Not only have prices fallen in many areas, but appraisers are having to build in future price trends to their appriasals. 

I have seen appraisals not only using sold comps, but active and pending comps, indicating market trends, as well.   In previously-price-stable areas where prices have only recently declined, appraisers will pick up on the trend and down-price their appraisals.

I am not saying you price low simply to satsify a possible lower appraiser.  But you have to look into the future a bit and know it might be possible - hell, even likely - that a property when sold will underappraise, and advise the seller of this possibility, to avoid a fall-through later.

For many years, appraising a house at sale price was pretty automatic.  Not so anymore, unfortunately.

I guess I am your 100th comment on this post, BTW!  Congrats!

DEAN & DEAN'S TEAM CHICAGO

Wow !  Great post and a lot of insightful discussion.  Jennifer, I agree with you.  We need to price the property accordingly in the beginning and get the most we can for our sellers and deal with the appraisal later.  The fact of the matter is is that it is so intangible and there can be so much uncertainty that we have no idea anyway of where the appraisal will be coming in for at that point we do not know who is going to do the appraisal.  So, the good news is that I am always ready if an appraisal comes in low... I will deal with it as I have the data and I know the market inside and out.  The fact of the matter is with all the properties that I have sold (both buyer and seller side) I think I only have had 2 appraisals come in lower than the sales price.  One we worked out, the other was a shame as it scared the buyer and that appraisal report was one of the worst I have ever seen.  I fought tooth and nail because that is what I do...   Big picture, it has happened so seldom in my area.  Knock on wood though, as we have about 10 or more deals under contract where the appraisal process has not begun... so will keep you posted !  Great discussion here !

I priced a property at $675K higher than what the market says. Received two offers for less, but still higher than what comps show.

Seller got an independent but local appraiser who came in at $630K.

Buyer wrote and seller accepted offer for $660K. Hurrah!

BUT: Buyer's lender's appraiser (also local) appraised property at $625K. Buyer still loves the place, decided to revise offer for $640K, $15K ABOVE his appraisal, but below offer.

Seller said no. Canceled escrow. Wants the $660K or nothing.

Totally agree.  It doesn't matter what we do in my area lately nothing is appraising!  Appraisers are so overly cautious they've gone braindead. Example in point - $2000 for a fireplace. Yeah right!  But I feel that if a buyer thought the price was good in this 'I want a deal market' the hell with what the appraiser says!  We'll get this all worked out because I'm still convinced they are really not a part of the transaction - just a big wrench that no one needs.  What goes around comes around in life.

Jennifer,

Your blog sparked an interesting discussion.  I totally agree with your opinion.   It is my opinion that a property is worth what a willing and able buyer is willing to pay but when an appraisal comes in lower than the agreed upon price and the buyer is no longer able to purchase the property because he can't get enough financing we need to be looking for solutions.

We just closed a difficult sale: the property was well priced, on the golf course and in pristine condition and we had a willing and able buyer.  However, the appraisal came in very low (about $160,000 lower).  The lender used an out of area appraisal who was not familiar with the property or the area and used comps that really didn't compare with the property; an REO in bad condition and a short sale not even on the golf course or in the community.  The sale was saved by a new appraisal and a buyer who understood the value of the property.

It just doesn't pay to overprice just to get the listing; both sellers and agents suffer. 

I love Melissa's idea of an Appraiser booklet!  Beyond that, in this recent market, I've had sellers who became angry when their property didn't appraise and refuse to "give my property away" -- even though we had the "it might not appraise in this market" discussion.  And I've seen buyers walk away when it didn't appraise on the basis that "you can't rust that agent or seller."

I think we're going to be dealing with the appraisal issue for some time to come because lenders are (understandably) "gun-shy."  (In fact, sometimes I wonder why they are still accepting loan applications!)  So while I don't want to leave $$ on the table, my goal is to sell the property -- and that means I have to take into account the probable appraised value.

Hence, my CMA is always carefully documented with an "adjustments" column for items where my seller's property was "better" or where it is "not as good."  I use a local appraiser's "guidelines" for the plus and minus amounts, and so far have only had 1 of my listings under-appraise.

Seems like a pre-listing appraisal, coupled with a pre-listing home inspection, would do wonders to help the agent know what s/he is trying to sell for the seller.

You are SO right!  Thank you for sharing this - I have to admit, with the title of your post, I didn't expect your answer to be what it was!

You are SO right!  Thank you for sharing this - I have to admit, with the title of your post, I didn't expect your answer to be what it was!

Jennifer,

I think your blog is great.  I completely agree with you.  As a real estate appraiser in the Virginia Beach area I run into this all the time.  Currently we are seeing foreclosed properties being purchased by investors, renovated and re-sold below market. This is really affecting some markets in this area.  If the investors would follow your train of thought not only would they help the market price, but they would put more money in their pocket and help the individual home owners maintain the values in their properties.  I have started marketing to agents and investors a Pre-Pricing low cost appraisal to help maintain property values and make sure the home owner is getting what their house is truly worth.