Appraisals In a Hot Market
In a hot seller’s market like we have right now, buyers are often competing for homes the day they go on the market. This buyer competition is great for a seller, and it can occasionally drive sale prices up well above asking price. That sounds great if you are a seller right? Well, it may be great, until the appraisal…
Recently we’ve seen several appraisals come in low. This can create problems for both the buyer and the seller. If a buyer is marginal on their loan qualifications they may not be able to get financing if the appraisal is low. A seller may be forced into lowering the sale price to appraised value to make the deal work, or letting the sale fall apart in hopes that the next buyer and appraiser can make a sale happen.
If you are a seller and you receive multiple offers on your property, you should definitely consider a buyer’s financing situation when choosing an offer. A buyer with a large down payment can usually still make a purchase work even with a low appraisal. A buyer with weak financing may not be worth the risk even if their offer is a couple thousand dollars higher. A strategy we have been using lately, when we are on the sellers side of the deal, is to negotiate out the appraisal contingency. This has been successful for us several times, because it prevents a strong borrower from using a low appraisal as a negotiating tactic later in the deal. Another strategy is just to debate the appraisal. If you can show the appraiser some better comparable sales that support your price or some features of the house he or she may have missed, you may convince an appraiser to adjust the appraised value.
If you are a buyer on the other hand, obviously you’d prefer not to overpay for a property. Unfortunately in a market like this it’s not uncommon to pay a little more than market price. When you have an appraisal contingency in your offer, and the appraisal comes in low, you have the right to terminate your contract if the sales price isn’t adjusted to the appraised value. This contingency can be used to try to renegotiate at that point if your appraisal is low. In this situation, we were able to bring the price of one house back down close to the asking price, when it had originally been bid up to $10,000 above asking price. Of course, if you really really want the house, you may not want to walk away just because you are having to spend a few thousand extra. Sellers know that the buyer probably doesn’t want to terminate the contract so they are often stubborn with this negotiation. Buyer and Seller often meet at some middle ground, but hopefully it brings the buyer back to a more reasonable purchase price.
These are all things your real estate agent should have experience in and can help you work through. Part of your agent’s job is to problem solve and negotiate when situations such as a low appraisal arise. In any case, just pay close attention to the terms of your contract whether you are on the buying side or the selling side. Little things like this can make a big difference throughout your home sale or purchase deal.