Appraisals are a HUGE issue in this market. Put a home under contract for $300,000, and it could very well appraise at $275,000. This is a fact of the marketplace and sellers have to deal with this reality. Sellers in the traditional sense, and sellers in the bank owned or short sale sense.
When a property doesn’t appraise and you’re in the middle of a short sale transaction, it’s not as easy as going to the seller and saying “reduce the home to appraised value,” (which also isn’t easy)…it’s a whole new process. Submit the appraisal to the bank, submit a new HUD, submit a new addendum that has both parties agreeing to the new price. Submit that to the investor on the short sale loan who will then compare the buyer’s appraisal to the banks value…and then, wait and wait and wait and wait…and wait some more.
Here’s a few things to know when dealing with a low appraisal:
1) If it’s a FHA appraisal, that appraisal will stay with the home for six months. It’s a valid point to let sellers and banks know…if they think the home will sell for more between now and six months from now, they’ll need a cash buyer or a conventional loan to close it. Forty-seven percent of sales this year have been from first time buyers with FHA financing
2) Consider you are the buyer. Would you want to pay above appraised value for a home? Especially in this market! Buyers want to purchase a home with bells, and whistles, AND equity. If a buyer has to pay appraised value they may feel like they’re not “getting a deal.” As long as the appraisal seems fair, the best thing for a seller or bank to do when dealing with a low valuation, is not to make any big sudden movements. Slowly back away, put your hand out to the buyer, and give them an olive branch in the form of selling the home at appraised value to them.
As a seller, you may feel wounded because the appraiser doesn’t appreciate your home as much as you do…but the buyer also feels wounded for having been willing to pay so much more than market value. Give your listing Realtor a pat on the back for getting your home under contract for more than it’s worth and just deal with the market as best as you can. That may sound harsh, but that’s the reality of getting homes sold in this market.
3) If the appraised value makes your home a short sale, contact your lender immediately and explain the situation to them. They may be willing to sell it short if it’s not a big difference. Or you can offer to bring money to closing to cover the difference which will save your credit, or sign a promissory note.
This is a tough market for buyers, sellers, Realtors, banks, mortgage brokers…heck for everyone! But there are many things in a real estate transaction that are out of your control…there are many variables because there are many parties involved in getting a home from contract to close. The best advice I’ve ever received is not to get emotionally involved, and to ask yourself W-I-N – What’s Important Now to get this transaction closed. If you take those small steps, pretty soon you’ll be at the closing table signing away and moving on.