Low Appraisal? How To Avoid It, And What To Do About It.

Oh what a thrill! You sold your home! Now there are Big Plans to follow through, decisions to make, people to notify, boxes to pack, addresses to change……..oh, wait just a minute. What was that the appraiser told your Realtor®? Your home didn’t appraise for the full sales price?

Gaaaahhhhhh!

Okay. Now that you’ve had a chance to sit down and get over the initial shock of that news, let’s take a look at how to deal with it – and more importantly, some ways you can avoid it happening in the first place.

#1 – Heeding Advice.

You’re probably not going to like this part, but think back . . . when it was time to set the sales price for your home, did you insist on a figure that your Realtor® felt was too high? We’re not trying to say we told you so – but rather, provide some helpful advice for those who are planning to sell a home soon.

Your real estate professional knows the market, has pulled the comparable sales, and is aware of other homes that are currently listed. In other words, they’re providing their recommendation for a listing price based on facts – the same information that the appraiser will use to set the value. Most of the time, a homeowner is basing their opinion of the value of their home on how much they paid for it, how much work and money they’ve put into it, how much money they “want or need to get out of it”, and many other reasons that can’t really be calculated. The takeaway: Trust your real estate professional’s opinion on this matter. After all, you hired them specifically because of their skills. This is one of them.

#2: Frustration. (aka, “But the buyer is willing to PAY that price – so that makes it WORTH that amount!”)

If only. On one hand, it makes perfect sense, doesn’t it? We’ve all heard the term: “The Buyer sets the market.” But when it comes to real estate, that’s not necessarily the case. Homes, after all, are not Cabbage Patch Dolls. There are many more factors involved in real estate transactions that have to be taken into account – not the least of which is the amount of the mortgage loan. Lenders have a fiduciary responsibility to secure their real property loans, and that means we head straight back to (you guessed it) – the actual value of a home based on the market and comparable sales. The takeaway: The market sets the sales price when it comes to real estate.

#3: A Hot (or Cold) Market

Your market may be very active. In a rising market, low valuations are fairly common because appraisals are based upon sales that closed when prices were lower – and the reverse is true in a declining market. In other words: Sometimes appraisals can’t keep up with how quickly homes are selling in a hot market, so you’re bound to see lower-than-expected values placed on homes.

#4: Can You Do Anything to Avoid This Problem?

There are some steps you can take after the fact – but first we’d like to address a few things that you should do before the appraisal (and your Realtor® can help you with these).

• Get your paperwork in order.

o Before the appraisal takes place, gather all the information you have about your home and send it to your Realtor®.

o List all the major improvements you’ve made – along with details about the age and condition of the major systems – roof, HVAC, appliances, plumbing, etc.

o Provide the original permits for any do-it-yourself projects you did for the home.

o The takeaway: Hand every bit of helpful information you can to the appraiser ahead of time to ensure they have all the facts in their possession from the start.

• Prepare your home for company. Okay – that might sound a bit over-the-top, but we’ve said it before and we’ll keep on saying it: Your home never gets a second chance to make a good first impression.

o Think about it like this: A good appraiser isn’t going to devalue your home because it’s messy – but you know what? They’re human, too! A clean, tidy, dust-free environment is one extra way you can impress them with the (even if it’s subconscious) message that “this home has been taken care of and is in great shape.”

o The takeaway: It. Can’t. Hurt. Can we say this again? It. Can’t. Hurt.

#5: Is There Anything You Can Do After The Appraisal To Fix It?

After the appraisal has come back too low, discuss all the possibilities with your Realtor®. These can include (but aren’t necessarily limited to) the following – because every transaction has different details (and possibilities):

• Appeal the appraisal (referred to as a “Rebuttal of Value”). This is when the homeowner, the loan officer, and often the real estate agent work together to find better comparable market data to justify a higher valuation. Everyone gets to work looking for anything that helps the claim for higher valuation. It’s possible that perhaps the appraiser overlooked some comps that support your purchase value. The takeaway: It’s a hard fight – and if there is any way to avoid having to make it (like the steps listed above before the appraisal occurs) – do it.

• Order a second appraisal. But it will cost you. You’re not only paying for the first appraisal (in your closing costs), but you’ll pony up for any additional appraisals as well. They can range between a few hundred dollars and $1,000 depending on the area. If you find evidence supporting a different valuation and the original appraiser won’t consider it, this may be your next best option. The takeaway: It can be worth it – especially if the difference in valuation is considerable. Spending $1,000 to gain $10,000 is a good investment – but have your ducks in a row to ensure your chances.

• Negotiate. Sometimes, all it takes is a little bit of budging on both sides. If you’re lucky, that solves the problem. Your Realtor® may be able to arrange splitting the difference between both parties, or it may be necessary to renegotiate the agreement completely. The takeaway: Cooperation is key – and if there were negotiation issues where you gained up-front, consider revisiting those as persuading factors now.

• Let them walk away. It can hurt – but there are times that no meeting of the minds is possible. The takeaway: Again, make sure you’ve explored all the options with your Realtor®, and let their instincts guide you on this decision. It’s not personal, it’s business. One thing to keep in mind is that appraisals remain valid for 6+ months on certain loan types, so if you should get a new buyer using the same type of financing… you got it – – the previous appraisal amount prevails. This in itself should be a compelling factor to negotiate the deal you’ve got.

Just keep in mind; most appraisal companies offer a step-by-step procedure to follow if anyone involved in the deal thinks the valuation is off base. But this is one situation where following the Boy Scout motto to “Be Prepared” can help you head off a lot of frustration and disappointment after the fact.

New Home Resource helps current and future homeowners with all of their Las Vegas real estate needs. Whether your preference is for a newly built home from a local builder, or a resale property in just the right location, a New Home Resource Realtor® is here to find the perfect property for you. Please contact a New Home Resource Realtor® today at 702-365-1000 or at www.newhomeresource.com. Broker Joanna Piette, and agents Denise Moreno Thrasher, Jessica O’Brien, Evelyn ‘Beng’ Kern, Lance Partin and Kathy Paterniti are all here to help!