An appraisal can make or break the sale

Question: Dear Kari, I listed my home for sale with my real estate agent, and I accepted a great offer right away. Three weeks later, my agent called with the news that the appraisal came in $20,000 under the purchase price. Now what do I do? Answer: Thank you for asking such a good question, as this could be helpful to many. Usually when buyers make offers on homes, they will have a loan contingency and an appraisal contingency. Meaning that not only do the buyers have to qualify for the home loan, but the home must qualify for the exact amount of the purchase price. Typical time frames for these contingencies are 12 to 20 days. The appraisal contingency in the contract is not only to protect the lender's interest, it also protects the buyer's interest. In more situations than not, the lender has more to lose than the buyer. Lenders are in the business of lending money; however, there are strict rules and guidelines for this process. A low appraisal is every seller's nightmare. Let's first look at some reasons for a low appraisal: · Lack of curb appeal. · It could be the appraiser is from out of the area and not familiar with current market values. · Adjustments downward for lot size or odd configuration. · Unpermitted additions. · No garage. · The appraiser could be a newbie. · The seller could be overpricing because of emotional ties or greed. · There could also be a case of buyers receiving cash back from the sellers for closing costs, which causes a higher price. · Overly personalized renovations. · The appraiser could be overlooking important comparable sales. · Broken or aged items in the home discovered, such as an old furnace. · Dated or undesirable finishes such as wallpaper. · The appraiser didn't include the home improvements. · The market could be in decline. · There could be an error in placing full value on upgraded items. · Selected comparable properties sold from the wrong (lesser desirable school district) neighborhood. · Rising home values with lack of inventory. The lenders cannot lend a penny more than the appraised value states. The lender will continue to offer the loan to the buyers with more cash down payment to equal the appraised value. Let's look at some solutions that might close the gap. Sellers can simply lower the price of the home to meet the appraised value. The buyers have the option to bring in additional cash to make up the difference in the appraisal and/or buyers and sellers can agree to split the difference 50/50. Borrowers can also start over with a new lender and a fresh appraisal. This can be very undesirable for many buyers who don't wish to put out more cash. This is especially true when there's the uncertainty that the second appraisal may not be any different from the first. Buyers can cancel the contract at any time in the process and receive all their deposit monies back as long as they are within their contingency timeframes. My favorite solution is to dispute the appraisal with the original lender. This can be done by writing a letter to the appraiser and sending the lender a copy also. The letter should be polite, straight to the point and without a vicious tone. It is good to point out specifics of why the value is different, in your opinion. Offer new comparable homes or further information on the existing homes in the comparison the appraiser selected. You may find out a home took a much lower price due to a divorce, probate sale or foreclosure in the home, which caused a lower price. You may ask the appraiser why the comparable homes were selected. Ask the appraiser if he or she would like to take a second look at the home to refresh their memory. Be courteous, as the appraiser does not have to change anything if they do not wish to. As a seller, consider yourself lucky when a buyer is willing to look at options after a low appraisal. Some buyers get spooked right away and will cancel the contract immediately. Please keep in mind the appraiser is only human and reflects one person's opinion. In a perfect world, the appraisal comes in at the purchase price, and then you don't have to worry about these issues. However, a good listing agent will be present to meet the appraiser at the home to provide the proper comparable sales and a list of highlighted features that can add extra value to the home in order to troubleshoot any miscommunications. Kari McCoy owns the Kari McCoy Group, Residential Real Estate, at Windermere. Call her at 916-933-5274 or e-mail her at . #00854188