Eric, outlines a common problem we are also having in Florida. The problem is rear view appraising is now holding back a recovery. It did nothing however to stop the freefall of prices over the last 5-6 years.
Now that home prices are starting to rise and more Home Sellers are experiencing multiple offers w’re starting to see more appraisals coming in low.
The reason for this is is due to the number of recent homes sales proving a home’s value is actually less than what’s being offered on a home.
In cases like this one of three options are possible.
- Negotiate for a lower sales price
- The Buyer comes up with more money since the bank will only loan what the home is worth
- Appeal to the Appraiser
How Appraisals Are Performed
Having been an appraiser at one time this is a pretty easy subject to talk about. Appraising a home isn’t much different from finding a home’s value. Comparable homes are still pulled within a mile or close to the subject. Comps should have similar square footage, bedrooms as well as similar architecture if possible.
The difference between an appraisal and a traditional market analysis by a Realtor is that an appraisal looks more closely at numbers versus a market analysis that may be more of a ballpark number.
Options for a Low Appraisal
If the Seller is willing the Buyer could see if the Seller would be willing to accept a lower price on the home. The disadvantage of this could be that the Seller may cancel the purchase agreement and go with another offer. This will depend more on how much of a difference there is between sales price and offer.
Another option would be for the buyer to come up with more money that would cover the difference between what the appraisal says and the agreed upon purchase price. Depending on the buyer’s financial position this may or may not be a possibility.
The third option would be to contact the appraiser and see if they could take another look at comps and see if they can get any closer to the sales price. If the appraiser is a good one they probably can come up a little bit. There may still be an issue of a low appraisal, but at lease things are a little bit closer and both parties can look at options one and two again.
It’s Going to Take Some Time
As more homes are sold in the rebounding market we’ll see higher home prices support higher offers, but it’s going to take some time. There needs to be an adequate number of home sales before there can be higher supported home prices.
Eric Hempler is a Minnesota Realtor with the Agent Referral Network and works in conjunction with RE/MAX Advantage Plus on the Minnesota Real Estate Team, #1 Real Estate Team in Minnesota since 2006.
Eric Hempler can be reached at 651-491-3393 or EricH@MNRealEstateTeam.com