Dealing with Time Lag Between Appraisal Report and a Changing Market
Make sure you have prepared your seller early on by discussing comps and appraisals. When an appraisal comes in low,
• Look at the prior sales:
• Was it an Arm's Length sale (example: parent giving child a discounted price)?
• Was it a Short Sale?
• Was it a Distressed Sale?
• Take stock of how the appraisal affects the deal- if your buyer has 50% Loan to Value, it won't really matter. All that is hurt is ego. If the Loan to Value is high enough that it does matter, you may need to ask for a second appraisal, or to renegotiate your price.
• Don't be adversarial toward the Appraiser. Remember you're a team, and you need to help each other.
• Low appraisals may also be due to:
• Inexperience- Appraisers have public licenses, so check how long the appraiser has been in business.
• Ask about their experience, and find out, for example, what their experience is doing appraisals in Manhattan.
• If you have an appraiser who seems too inexperienced, delay the appraisal- tell the appraiser that the seller had a problem and needs to postpone. This way you might be able to get a better appraiser.
• Inaccurate data- Some appraisers end up using bad comps, such as using a 2 BR to comp a 3 BR. Sometimes the bank will conduct 2 appraisals with the same comps, and the adjustments will be quite different.
• There is a time lag between the most recent comps you find and what the appraiser receives. Things that just went into contract, for example, you'll know about, but the appraiser won't. Provide the appraiser with these comps.
• Make sure you attend the appraisal, so you can provide information to help the appraiser come to an accurate number.
• Remember that the market is constantly changing. In the time between the comp sales and yours, the value of the apartment will have fluctuated. Always take current market conditions into account.