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A low appraisal can kill a home sale.
“It’s one of the more common reasons that transactions fall apart these days,” says Tara Nicholle Nelson a consumer educator.
In a normal market, when an appraisal is lower than expected, it’s up to the buyer and seller to cooperate – the buyer needs to put more cash into the deal or the seller needs to lower the price.
But “in today’s market, so many sellers are selling for so close to what they owe, there’s not a lot of leeway,” Ms. Nelson says.
Conditions in many markets also make an appraiser’s job more challenging, says Leslie Sellers, president of the Appraisal Institute.
For one, fewer home sales means they have fewer comparable sales to consider when estimating market value, he says. Also, sales that involve properties with issues attached to them – short sales, for example – often will have a lower price than a traditional sale. Short sales are when a borrower owes more on a home than it’s currently worth, and the lender agrees to take less for the property.
Also, home prices in some areas are starting to stabilize or rise, while other areas are still struggling, so appraisers have to be aware of local conditions, says Eric Fox, vice president of statistical and economic modeling for Veros, a provider of automated valuations and predictive analytics for the mortgage industry.
Whether you’re buying a home or refinancing a mortgage, take time to read the appraisal report. Make sure the appraiser made no mistakes that might have led to a lower valuation.
Make sure facts about the home are correct, including the number of rooms, bathrooms, says Griff Straw, president of Solidifi, an appraisal management company. Look for omissions, such as a recent addition of significant improvement that should have increased the value of the home. Check the comparable sales data.
If problems are identified, a lender may challenge the appraisal company’s report through a formal process.
There are two main justifications for an appeal, says William Fall chief executive of William Fall Group, a national appraisal company. Either the appraiser neglected to consider similar, recently sold properties in the final value or the appraiser made a significant error or omission in reporting characteristics of the property that could affect value.
Even before the appraisal is finished, provide any information you think might help the appraiser come to a proper valuation. Mr. Sellers says, “If you are aware of a foreclosure down the street that is similar to yours, or divorce case that would cause a sale to be low for high pressure reasons make the appraiser aware of that” .By Amy Hoak
