Should You Price to Ward off Appraisal Problems?

By
Education & Training with Sell with Soul

Sellers want more for their homes than the market is likely to pay. That's a fact; it's been a fact forever, during boom times and busts, and will continue to be a fact long after the Recession of 2009 is behind us.

Nothing wrong with it; it's human nature and we're all guilty of putting a higher value on our own precious for salestuff than anyone else is going to. But part of our job as listing agents is to gently persuade our seller clients that we need to price properly in order to get their home sold.

But should that "proper price" take in to account what the house might appraise for?

In my opinion, no.

WHAT???? Jennifer, are you out of your mind?? What if you overprice the house and it sells at that price and the appraisal comes in low?? What then?

Indeed.

I take great care in pricing my listings - I want to get my seller the highest possible price in the shortest amount of time, assuming that's his goal, too. And I've been doing this long enough to understand that pricing it RIGHT is best way to get the highest price, as opposed to pricing it high and hoping a bigger idiot comes along and pays that price. So, before I continue, let me assure you that I know how to price a house to sell quickly, without giving away my seller's money. (Read more about that here).

If I feel a house will sell for more than the market data indicates, I'll not hesitate to price it accordingly. If a particular house shows so well and feels so good that it blows away the similar competition and recent sales... even if "on paper" it's not "worth" more, I'll put that higher price on it. My seller deserves the opportunity to see her hard work or design-sense or whatever pay off for her.

(Again, remember, I'm not stupid and I'm not inexperienced. I know what I'm doing.)

So, back to the original question. "What if it sells at full price and then doesn't appraise?"

Frankly, I'll deal with that when and if the problem arises. If I get my seller "too much money" for his house, and the appraiser or underwriter doesn't agree with me and the buyer, then we'll go to Plan B. Which, yes, may include the seller coming down on his price to meet the appraisal. Or getting a second appraisal. Or whatever other solutions we can come up with.

And yeah, it might suck and everyone might get mad. But I'll deal with that at the time!

I'd much rather take the chance of getting top dollar for my seller and then scrambling to justify it, then to pro-actively risk leaving my seller's money on the table when we could have gotten more. In other words, I don't believe in underpricing a home in order to avoid appraisal issues, and I don't believe it's a good tactic to use when discussing price with a seller prospect.

How do you feel about it?

 

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. joe blow 07/29/2009 07:06 AM
  2. John Watch 07/30/2009 03:25 AM
  3. Anthony E. Martin 07/30/2009 08:22 AM
Topic:
Real Estate Best Practices
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Rainmaker
716,233
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

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

Jul 30, 2009 09:22 AM #93
Anonymous
David Varrieur

No one is perfect but if we are analyzing the same data, skilled appraisers should come to a reasonably similar conclusion. (During appraisal reviews, I may ask the appraiser why this comp was selected or left out, did you pair sales to support the pool adjustment? etc.) But we all have a great respect for each others work if it is supported. It's very much like law.

I always feel confident of the value estimate once completed and hope I did a proper analysis but it is a "value estimate." New or missed data can certainly change the outcome. You have to understand that USPAP has a competency law. If an appraiser is in doubt of their conclusion, the law is violated. Hence, the appraiser either "gets competent" so they have little or no doubt or they are required by law to disclose that to the client and/or abort the assignment.

And, no dis Jennifer, but I don't really agree with you about the same goal. We are all professionals held to a higher public ethical standard and we should get values correct. Agreed, that some have more or less market appeal and appraisers need to take that into consideration also. It is our combined effort and responsibility to keep the real estate market stable over the long haul. ;)

Jul 30, 2009 09:37 AM #94
Anonymous
Dennis Erickson

Jennifer,

The roles of appraiser versus real estate broker come together in the basic use of data to formulate a value for real property, but that's where the similarity ends, in my opinion.  I've taken the state-madated appraisal courses and have been an agent/broker for 25 years.  The appraiser is tasked with reporting the sales "history" in the area, the properties that have sold recently while the agent is tasked with a much more difficult prospect, that of predicting what tomorrow will bring for the property.  We are "market makers" using our real time marketing tools like web sites, to enhance the visibility of the property for sale, accentuate its best features, present financial options for the purchaser, basically build a virtual world of possibilities for the property and its new owners so a decision to buy or not to buy can be made.  Low appraisals will plague us until the day lenders leave the arena and buyers go to an all cash buying process.  In other words, forever.  While the conflict between appraisers and brokers will always exist, it's actually a healthy, though maddening, check and balance system that needs to stay in place to keep the ship on course.

Jul 30, 2009 10:38 AM #95
Rainmaker
76,453
Natalie Langford
Realty Negotiations - Winchester, VA
Winchester, VA Real Estate

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...

Jul 30, 2009 11:11 AM #96
Rainer
37,579
Paul W. Thompson
Homestreet Bank - Vancouver, WA
Going Above and Beyond...

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.

Jul 30, 2009 12:49 PM #97
Rainmaker
488,451
Alexander- Slocum
Premiere Property Group, LLC - Vancouver Washington - Vancouver, WA
Realty Team- Vancouver WA Real Estate

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

Jul 30, 2009 04:55 PM #98
Rainmaker
368,246
Dean Moss
Dean's Team - Keller Williams Realty Partners Chicago IL - Chicago, IL
Dean's Team Chicago IL Real Estate Team

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

Jul 30, 2009 10:25 PM #99
Ambassador
769,886
The Somers Team
The Somers Team at RE/MAX Access - Philadelphia, PA
Real People. Real Dreams. Real Estate.

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 !

 

Jul 30, 2009 11:54 PM #100
Rainmaker
710,558
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

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.

 

Jul 31, 2009 05:26 AM #101
Rainmaker
1,526,760
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

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.

Jul 31, 2009 08:32 AM #102
Anonymous
David Varrieur

Wow Lyn! It sounds like you are a victim of the HVCC. Do you know what the HVCC is or are you braindead on what has happened over the last year?

Good appraisers don't intend to kill deals but Pacita's Lender's appraiser is typical of how the HVCC has screwed us all.

Jul 31, 2009 09:37 AM #103
Rainmaker
345,972
Anja Kerstens
Coldwell Banker Residential Brokerage - Morgan Hill, CA
GRI, CDPE, CHS, ASP, Selling Silicon Valley Real

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. 

Jul 31, 2009 10:58 AM #104
Rainer
11,170
Tressa "Teri" Malone
Keller Williams Realty Premier Properties - Westfield, NJ
Westfield NJ Area Properties

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.

Aug 01, 2009 08:59 AM #105
Rainer
321,367
Russel Ray, San Diego Business & Marketing Consultant & Photographer
Russel Ray - San Diego State University, CA

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.

Aug 01, 2009 06:42 PM #106
Anonymous
David Varrieur

Thank you Russel! As spoken from an independant business consultant who doesn't have anything to gain.

Aug 02, 2009 03:19 AM #107
Rainmaker
34,894
Amy Boxer
Pura Vida Design Group, Inc - Oakland, CA

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!

Aug 04, 2009 06:28 AM #108
Rainmaker
34,894
Amy Boxer
Pura Vida Design Group, Inc - Oakland, CA

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!

Aug 04, 2009 06:28 AM #109
Rainer
4,187
Betsy Hughes
BK Appraisal Services - Virginia Beach, VA

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.

Aug 17, 2009 05:27 AM #110
Anonymous
Arnie
A paleisgnly rational answer. Good to hear from you.
Jan 05, 2012 02:33 AM #111
Anonymous
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Jan 07, 2012 11:08 PM #112
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