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How-to’s: What to do if your home doesn’t appraise at the price you want to sell?
Housing sales heat up and they cool down. When home sales volumes increase, house prices hold firmly or go up, and inventories decrease. Buyers and their banks tend to negotiate less.
When sales volumes decrease, home prices level off or decline. As inventories rise, buyers feel more confident about making lower offers.
However, it’s no longer that simple. Due to new banking regulations, your home must meet strict new appraisal standards that include examining home prices going back as far as one year.
If the housing market in your area is in a decline or coming out of one, appraisers are supposed to apply a formula to make sure that the current price isn’t overoptimistic.
Home sales may be increasing in your area, but for the wrong reasons. If your region has a high number of foreclosures due to factory closings or housing speculation, you may be in for a nasty surprise.
Just when you think you’ve sold your home, the buyer’s bank comes back with a property appraisal that’s less than the contract price. Your choice? Amend the contract to the appraised price, or lose the buyer.
But wait, you may have other options.
Other ways to keep the contract together
Naturally, the buyer is pleased at the option of getting your home for less, but you still have some advantages – your comparables (other homes that have recently sold and are currently on the market that are similar to yours) and the fact that the buyer wants your home and was willing to pay the contract price.
Challenge the appraisal
In some cases, banks use appraisal management companies that hire out-of-area appraisers, or they use low-cost appraisal products besides a full professional exterior and interior appraisal. These products include automated valuation models (computer-generated appraisals), drive-by appraisals in which the appraiser does not go inside the home, and broker price opinions (opinions of property value by professional REALTORS®.)
This is where your real estate professional really earns her stripes. As a knowledgeable person in your area, she can determine what kind of appraisal was used to arrive at the home’s valuation. If the buyer paid for a full appraisal and only received a drive-by, for example, that’s cause for the buyer to insist on a second appraisal, if they still want your home.
Your broker can also examine the homes that were used in the appraisal and determine if the comparables are truly similar or not. If not, you have a fighting chance.
1. Have your real estate broker provide an updated CMA (comparable market analysis.) It could be that new market information is available, such as recent solds that will help your case.
2. Hire your own appraiser. It will cost between $350 and $500. Banks do not have to use this appraisal, because it comes from the seller, but it can provide compelling evidence that the contract price is fair.
3. Prevention is the best medicine. If your contract falls through, make sure that your next contract protects both you and your buyer by insisting that the contract price must meet appraisal – a full-service interior and exterior appraisal by a licensed professional who knows your area.