5 Reasons Why Your Appraisal Came in Low

5 Reasons Why Your Appraisal Came in Low
Zillow
Aug 13, 2013

By Monte Mohr

The real estate industry has often struggled with low appraisals. But as a healthy housing market tries to reemerge, more conversations are taking place about low appraisals and the impact they can have on a deal. Housing valuation is a subjective process by nature, but there are common reasons why appraisals come under the agreed upon sale price.

1. Home Priced Too High
Even though a buyer and seller agree upon a price, it does not guarantee that the price is in line with the market value. Market values are designed to measure what a “typical buyer” will spend for a property; not what a “specific buyer” is willing to pay. Sometimes there may be a small number of buyers, who are willing to pay more than market value, because they desperately want to live in an exclusive neighborhood, or they have friends living nearby. But that small number does not represent the majority, which is how the value of your house will be determined.

2. Botched Appraisal
Much of the scrutiny that has faced the appraisal industry has been warranted. Sometimes homes really receive a bad appraisal. The reasons for bad appraisals vary, but most often a bad appraisal is the result of an appraiser who is inexperienced; who conducted a very quick and sloppy appraisal; or who is not familiar with the local market and guesstimated a value.

3. Lack of Available Good Comparable Sales
Appraisers will look for comparable sales when determining the value of your home. Unfortunately, distressed sales have been skewing values for several years. This is especially problematic when home values are on the rise, because it takes several months for the comps to catch up to the market. And to complicate the matter, lenders have their own set of restrictions about which comps they will accept. Maybe the best comparable sale, in terms of home features and similar upgrades occurred nine months ago. But the bank won’t accept it because it’s too old. The lender would rather accept a comp from the sale of house within the last three months, even if the house itself isn’t a good comparison.

4. Strict Lending Guidelines
Ever since the housing bubble burst, lenders have tightened up their guidelines. It’s not uncommon for a bank to label an appraisal as “suspicious” if they feel it comes in too high – or even if it comes in at asking price. The pendulum has swung and regulations have become exceedingly strict. Lenders are fussy and they will not accept appraisals that they deem as inflated.

5. Counter Offers Gone Awry
Although this is less common, sometimes in a thriving market, sellers will issue counter offers above asking price. Doing so can thrust the sales price above market value. In turn, the appraisal will appear to come in low, but in reality it is just reflective of where the sales price should have been from the beginning.

 

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.