By Monte Mohr
Although the housing market has experienced consistent gains over the last year, the recovery has had some growing pains. Available inventory across the country has been shrinking, while prices have been rising, but as the housing industry tries to gain momentum, another issue is brought to light. Low appraisals act as an anchor dragging down the rate of rising prices. This, combined with new financing guidelines, is ultimately making it difficult for borrowers to get loans.
The financial crisis affected appraisals by prompting more conservative standards to be implemented, and the predictable drop in comparable home sales has only served to intensify the problem. So despite the recovery being felt in the housing industry, buyers and sellers must consider the possibility that an appraisal may come back lower than the agreed upon sale price.
Most markets have experienced an increase in home prices, however many real estate professionals, home sellers and buyers are feeling frustrated because appraisals have not been keeping pace with current rate of appreciation. When pulling comparable sales data, many times the data is months old and does not accurately reflect recent price increases.
If you are a home buyer and an appraiser assigns a value lower than your mortgage needs, a lender will deny your loan. If you are selling your home and an appraiser assigns a value lower than your contracted sales price, you could lose your buyer or be faced with the challenge of dramatically lowering your sales price.
So what can buyers and sellers do if they are faced with a low appraisal?
Be realistic. Sellers everywhere are excited because prices are no longer falling, but that doesn't mean they're skyrocketing.
Do your research. There are a many real estate sites that allow buyers and sellers to research sales prices within recent months. Look at homes that are comparable and use the price per square foot in the neighborhood as a gauge.
Be present. Sellers who are present during an appraisal can draw attention to upgrades that the appraiser may otherwise overlook. They can also give the appraiser a written description of features.
Review the report. Buyers and sellers should both review the appraisal for errors, omissions, and/or improper use of comparable home sales. Buyers can also ask the lender for a second appraisal.
Due to the fact that a sales contract typically includes verbiage that allows a deal to be terminated if an appraisal comes back too low, buyers will have the ability to renegotiate a lower sales price. Alternatively, buyers can come up with a larger down payment as a way to reduce their mortgage needs.
When faced with a low appraisal, there is no guarantee that you will be able to close the deal, but using the strategies above may bridge a modest disparity.
Monte Mohr has sold more than 2,500 homes, making him one of America’s top Realtors for the last 25 years. This experience has given him a unique perspective on the Nashville real estate market where he can be found at www.tennesseedreamhomes.com. He is also a regular contributor of real estate information to Nashville’s NBC affiliate station, WSMV Channel 4. To learn more about Monte Mohr’s experience as a real estate agent, to get free advice about your biggest real estate challenges or to request an interview, contact him at Info@TennesseeDreamHomes.com.