A Cautionary Tale About Appraisals in this Market

Real Estate Agent with Keller Williams Capital Properties DC AB15253

One would think that in this market of steadily increasing prices, a seller would not have to worry about getting their home to appraise after it went under contract.  Think again.

I just represented a buyer who negotiated the seller down from the list price - and got a 3% closing cost credit.   The contract contained the usual contingencies for a home inspection, document (HOA, Condo or Coop) review, financing and appraisal.

In the DC metro area, an appraisal contingency allows the following:  if a property does not appraise, the buyer can ask the seller to reduce the contract to the appraisal price (or some other price between the sale price and the appraisal) or void the contract.  In this particular contract, the listing agent and the seller did not place any limitations on the appraisal contingency.  For instance, they did not stipulate that the buyer would be responsible for the closing costs if the property did not appraise at the contract price but did appraise at a price higher than the sale price minus the closing costs. 

Of course, the property did not appraise (as luck would have it for the seller.)  In fact, it came in 2% less than sale price. The seller offered to reduce the price by 1%   and leave the closing costs in place.  The buyer was not willing to come off the appraisal price but was willing to ask the appraiser to reconsider the appraisal by including a comp in the neighborhood which was the same size but had some upgrades that this property did not have. 

The appraiser warned the listing agent that reconsidering the appraisal might result in a lower price rather than a higher price.  The agent pressed forward ..... and the appraisal indeed come in nearly another half percent lower than before. 

In this rapidly shifting market, not even appraisals are going to be a slam dunk.  As a seller giving closing cost help, it is important to protect against appraisals that come in higher than the net sale price (contract price minus closing cost assistance) but lower than the contract price.   It is a strange market and if you are representing the sellers, you need to protect them.   If you are representing the buyer, you need to make sure they understand that even though an appraisal is an inexact science, the bank is expecting the appraisal value to match the sale price - not the net proceeds to the seller. 

Comments (21)

Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello Lise - in a real estate transaction as it is in so many cases of everyday life, it's not over until it's over.  Even then, there are things that seem to "pop up".  Ah, Murphy moments. . .   

Nov 08, 2023 06:21 AM
Carol Williams
Although I'm retired, I love sharing my knowledge and learning from other real estate industry professionals. - Wenatchee, WA
Retired Agent / Broker / Prop. Mgr, Wenatchee, WA

Hi Lise,
This is a good point to make during this changing market. Thanks for sharing.

Nov 08, 2023 07:02 AM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good morning Lise,

Very good story to be telling with this changing market! So far (knock on wood) I've had no issues. I have two that need to be done and not expecting any issues BUT one never knows!!

Nov 08, 2023 07:38 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Lise Howe and interesting story that you are sharing with us today in your blog.  Hope you are doing good.


Nov 08, 2023 09:06 AM
Mark Don McInnes, Sandpoint-Idaho
Sandpoint Realty LLC - Sandpoint, ID
North Idaho Real Estate - 208-255.6227

Hello Lise.  Excellent heads up for long timers and rookies.  There is so much to keep in focus at the present time.  m

Nov 08, 2023 10:58 AM
Ed Silva, 203-206-0754
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

That byer as very fortunate as I would have advised my seller to toss in the difference to meet the appraisal but remove the concessions.

Nov 08, 2023 07:36 PM
Kathy Streib
Cypress, TX
Home Stager/Redesign

Hi Lise- a timely word of caution for buyers as well as sellers. The market makes a change and we need to look at everything in a different light. 

Nov 08, 2023 07:38 PM
Brian England
Ambrose Realty Management LLC - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

I have experienced some appraisers that just aren't very good at what they do and they should be held accountable.

Nov 09, 2023 03:43 AM
Adam Feinberg
Elegran - Manhattan, NY
NYC Condo, Co-op, and Townhouse Advisor

I just put in a best and highest bid for my clients last night on a property so unique it's begging to have issues with the appraisal if my clients get it. They are putting down at least 30% so that should help a bit, and might even put down as much as 65% (weighing differences of conforming vs. Jumbo with a recast- since jumbo rates are quite a bit lower right now).  The apartment is amazing-  a condo Penthouse with massive roofdeck in a converted carriage house- but there just are no reasonable comps out there. Both the listing brokers and I (as buyer's agent) are using insane lookbacks of up to 7 years spanning multiple nearby neighborhoods to come up with some reasonable comps. Prices haven't changed much in this time - so that isn't an issue. 

A year an a half ago I had an appraiser that came to my listing where half the apartment is in a finished cellar space- and was prepared to value the space at 10% of what I was using. The appraiser usually worked Long Island where the cellar space isn't very valuable- but in Manhattan, it's less valuable than a ground floor space, but it's not the near worthless value of a cellar in Long Island. When I raised the issue to the banker- who sponsored an open house at the closest comp to the property (aged 1 1/2 years- but it was the only reasonable comp to have sold in years) - we addressed the issue before the appraisal was released and the apartment ultimately appraised slightly above the contract price. 

I know some of these apartments are very rare to come by - but I have never used a lookback for comps up to 7 years before.

Nov 10, 2023 01:25 PM
Wanda Kubat-Nerdin - Wanda Can!
Red Rock Real Estate (435) 632-9374 - St. George, UT
St. George Utah Area Residential Sales Agent

Allowing an appraiser to do the job is instrumental in getting a true market value, Lise. Some think it's a game of 'how high can you go' to appease a buyer or seller. Not true as you explained!

Nov 10, 2023 03:49 PM
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Good morning Lise. Appraisals are indeed not an exact science. Like it or not emotions can come into, and often do, play. And sometimes things don't break your way. It is a part of life and you should be prepared for surprises. Well covered. Enjoy your day.

Nov 11, 2023 05:35 AM
Roy Kelley
Retired - Gaithersburg, MD

This is good information to share with home buyers and home sellers.

You made me recall the challenges I faced as a VA appraiser long ago.

Nov 11, 2023 10:11 AM
Mike Young
203kOnLine.com, covering the USA - Stallings, NC
FHA 203k Consultant 916-758-1809

Something this close... change the financing to a Limited 203k and fix or change one little thing on the home and gain up to 10% bounce on the appraised value.

Nov 11, 2023 04:04 PM
Debe Maxwell, CRS
Savvy + Company (704) 491-3310 - Charlotte, NC

WOW! That is so crazy to me, Lise! I hadn't had a low appraisal for many moons (other than the ones we knew would not appraise and the buyers had waived appraisal contingencies)...until last month! One that I knew was not going to appraise and the contingency was in place but, the buyers tried to push the sellers to give in other ways. Of course, we stood firm and the deal went through, thankfully!

I've never in my career had an appraiser LOWER the value based on a comp delivered. They will simply come back and say that the value did not increase with the provided comp. I feel like that appraiser was being a bit of a know-it-all!! 

I will take heed if one ever says something like that though! I have had several appraisal management companies 'fired' by lenders over the years by providing proper comps because the appraisers they sent out had NO clue about the area in which they were appraising. Threatening to move to a lender who uses 'reputable AMC's' often gets their attention too! 

Great post, Lise! Thanks for sharing your story. Have a wonderful weekend!

Nov 11, 2023 09:33 PM
Kat Palmiotti
eXp Commercial, Referral Divison - Kalispell, MT
Helping your Montana dreams take root

Excellent cautionary tale. Nothing is a slam dunk!

Nov 12, 2023 02:44 AM
Dr. Paula McDonald
Beam & Branch Realty - Granbury, TX
Granbury, TX 936-203-0279

This just goes to show you that it isn't over until its over. With a fluctuating market, anything can happen.

Nov 12, 2023 06:13 PM
Leanne Smith
Dirt Road Real Estate - Golden Valley, AZ
The Grit and Gratitude Agent

Yes cautionary and yet my sense is often the second time around the appraiser views it as an insult.  Additionally here in Mohave County, we are seeing appraisers from way out of the area and these folks know nothing about rural properties.

Nov 13, 2023 09:48 AM
MaryKay Shumway
The Kellstrom Ray Agency, Inc. (Est. 1948) - Sister Bay, WI
Door County Wisconsin's Real Estate Expert

How timely!  Yes, it's a crazy time for an appraisal in a slowing market. Thank you for posting.

Nov 15, 2023 01:13 PM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

Our prices are still soaring with winning offers being $15,000 to $30,000 over list price

Nov 15, 2023 05:35 PM
Charles Ross - eXp Realty LLC
eXp Realty LLC Salina Group - Salina, KS
Love To Help People

Lise Howe, your detailed account of the appraisal process in the current market is an essential guide for real estate professionals. Navigating appraisals can be tricky, and your experience offers a clear perspective on the precautions both buyers and sellers must take. Your expertise in managing these situations is a valuable asset to your clients, and your advice is a must-read for agents looking to refine their approach in this unpredictable market. Thank you for your wisdom! 📈🏠 #RealEstateExpertise #AppraisalAwareness 👩‍💼🖋️

Nov 16, 2023 04:36 PM