On the road again for appraisal class. One more trip to New Milford next week for a 1/2 day of review and then the Big Test. Then I can take my broker exam in January and I’ll be all done with studying for awhile.
There were a couple of interesting “in the field” points that were made this week in class, particularly in regards to fighting appraisals that come in less than the contract price. Houses “not appraising” is becoming more common because banks are really cracking down on appraisers. They really want to ensure they’re not overpaying for the asset. A few years ago the pendulum was swinging the other way, banks were too lax on appraisal reports. Hopefully we’ll eventually end up at some happy medium in the near future.
But in the meantime, we’ve got all of these properties that are not appraising. In this situation, the Seller seems to be in a more difficult spot than the Buyer. In most cases, the Buyer will not agree to pay more than the appraisal report states as that’s the value that’s accepted by the bank. The bank will not lend on more than the appraisal report indicates, unless the Buyer is willing to make up the difference by bringing more cash. That situation is really not happening now.
So what’s a Seller to do if the house does not appraise to the agreed upon contract price? Well, they can always walk away from the deal. No one is forcing them to sell their house. They can agree to the value on the appraisal report and lower the contract price. Finally, they can try to fight the appraisal, but this is typically very difficult to do and in almost all cases unsuccessful.
Our instructor seemed to indicate that the only good way to get an appraisal reevaluated would be to bring some less than obvious information to the bank/appraiser regarding one of the comparable houses used in the analysis. One way would be if the agent could prove that a comparison sale was not an “arms length transaction,” that might do the trick. For example, if the Seller of the comparison sale sold their house to a relative or a neighbor. That wouldn’t necessarily be an “arms length transaction” because they might be willing to accept a lower price in this type of situation. The comparison sale would then be brought into question, so it could be argued that it should be replaced with a different comp for the appraisal report.
Unfortunately for the Seller, it’s fairly difficult to track down this type of information. And in most cases the appraisal is valid, the appraiser is a trained service provider and they’ve done all the necessary research and are just reporting back their opinion of value for that specific day.
The market is becoming more challenging on all fronts. If you’re a Seller and you find that the appraisal value comes back short, talk to your agent about your options. Everyone’s situation is different. Some sellers will take their house off the market, some will choose to sell to that buyer, and some will keep their house on the market but the buyer will walk away. Only you can make the right decision for you.