We had one property in contract, and appraisal came $80,000 in lower than purchase price. Buyer who is a Real Estate agent insisted that our seller should reconsider the sale price based on the appraisal because all other buyers will run into the exact same situation.
Not so fast!
A low home appraisal can kill the sale of a home. Our story is a bit extreme but it may happen to you. So here are home selling tips to help you fight a low appraisal.
1. Check for mistakes
You and your real estate agent need to take time to read the appraisal report. Make sure the appraiser made no mistakes that might have led to a lower valuation. Make sure facts about the home are correct, including the number of rooms and bathrooms. Also look for omissions, such as a recent addition or significant improvement that should have increased the value of the home. And make sure the comparable-sales data is fair and accurate.
2. Look at homes in the same neighborhood
The homes used in the appraisal should be in the very same neighborhood as yours, especially if some of the surrounding neighborhoods are less desirable than yours.
3. Check into the school district
This can be a significant value changer for many neighborhoods. Homes in significantly better school districts are more desirable and generally priced higher than their counterparts in sub-par districts. Be sure all homes in the appraisal share the very same school district. This can make all the difference.
4. Ask the appraiser to reconsider
Once you have copies of all your comps and any other supporting documentation, you can present all that to the appraiser and ask them to reconsider their determination. This is usually done via the bank or mortgage company that originally ordered the appraisal.
5. Ask for a second appraiser
If the appraiser refuses to reconsider his determination, and you and your agent feel there is supporting evidence that would significantly alter the outcome of the appraisal value, you can send a demand letter to the bank or mortgage company to send out for a second appraisal.
6. Order a brand-new appraisal
Finally, if all else fails, you or your real estate agent can order your own appraisal. There is a cost for that and you would have to pay for it out-of-pocket. There is no guarantee that it will come in at a better value, but if you and your team feel confident that the value should be higher, than it may be worth the expense. You can also try to have the cost split between the seller and buyer — as it benefits both.
7. Meet in the middle
If buyer agrees that appraisal value is not reflecting property improvements etc., you can meet in the middle or somewhere in between. For example, if purchase price was $500,000 and appraisal came $480,000, you can lower the purchase sale to $490,000 then buyer needs to make up the difference in cash.
As for our case, buyer/agent was determined to purchase property closer to appraised value, which was $80,000 lower, and will not go along with a dispute of the appraisal. In fact we thought this could have been appraisal fraud because the buyer could flip this property without much of their money put into it.
So we discussed the situation to our seller, here is what we did…
8. Move on to new buyer
If you and your real estate agent are confident of your property value, and market value is not declining, cancel the contract and just move on.
I and sellers had confidence in the property valuation, especially after performing so many Broker Price Opinions (the estimated value of a property as determined by a real estate agent) for Bank owned properties and short sales for the lenders. So, we canceled the contract, withdrew the property from market for short time, re-listed property, sold for more than asking price. The appraisal came in at the purchase price. These two appraisal difference are whopping more than $90,000!!!
As always the seller should work with experienced realtor to handle these situations.