How to Avoid Pitfalls
in the Sale of Your Home Appraisal
Problems
By Jeanette Joy Fisher
A buyer has offered a great price on your home. But the home buyers' appraisal
doesn't measure up to the selling
price. This avoidable scenario can stop the sale of your home.
When you sell your home, appraisers use comps
(comparable market sales) of local properties sold within the last six
months to value your home. With today’s rapidly rising seller’s market,
six-month-old information is ancient history. Appraised value does not
always equal the true market value, or what your home will sell for on the
open market.
Realtors will give you a comparative market analysis, an informal estimate
of market value based on comparable sales. Lenders, on the other hand, will
use the appraised value to determine a new mortgage amount. Some lenders
require that the stated property value covers the mortgage amount plus their
selling costs in case of foreclosure. For this reason, a sale may fall
through if a home sells on the open market for more than the appraised
value, which often happens in bidding wars over hot property.
We learned the importance of securing a sufficiently high appraisal when we
sold a rental property in Lake Elsinore, California. We listed the house for
$234,700 on Friday. By Monday morning, we had three offers: $245,000,
$255,000, and $260,000. We accepted the one for $255,000 because the buyers
had $80,000 down, reassuring us that they had sufficient funds.
As usual, the lender sent an appraiser to review the property. This busy
appraiser didn't take the time to view all the upgrades we put into the
custom-built home. Even worse, he used only comps from the local one-mile
radius. Because this home is close to a shopping district, there were not
many homes sold in this limited area during the six-month period.
The appraiser used comps six-months old; during this time housing costs in
Southern California appreciated around thirty percent. Sales from six months
previous should have gone up in value by $30,000 on a $200,000 home. This
means that our home should have been worth $250,000 to $260,000, especially
since buyers are willing to pay this price on the open market. To increase
the value of this home, at the time there was not another three bedroom home
listed in the area for under $250,000 (excluding manufactured homes).
However, the appraiser valued our home for only $230,000 -- and we would
have lost the sale if the offer did not include a sufficient down payment.
Because a low appraisal can kill your sale, finding a buyer with a large
down payment provides you with a safety net. You may also choose a buyer
with strong credit who doesn't have to put a large percentage down. If you
think that your home’s appraisal could become a problem, make sure you don't
include a clause in your sale’s contract which states "subject to
appraisal." How to Avoid Low Appraisals
Hire your own appraiser before the sale. Then ask your buyer’s or
lender’s appraiser to review your appraisal.
Retain the option to approve your buyer’s mortgage lender. Make sure
that the buyer doesn't use a lender with a history of deliberately
underestimating property values. A good real estate agent should know which
lenders routinely under-value homes.
Create an organized journal with a listing of expenses and include
pictures to show to the appraiser during the appraisal appointment. Keep
records of repairs and upgrades, including costs. Take "before" and "after"
photographs. Stage your home for the appraiser, just like you did for your
buyers.
Ask your title agent and real estate agent for property comparables
to make sure the appraiser uses complete information. Call real estate
agents with homes in escrow and get the sales prices. Make a list of these
properties with the agent’s phone numbers and give your list to the
appraiser.
What to Do When Your Selling
Appraisal Comes in Too Low:
- Ask for another appraisal. I'm always amazed at the disparity.
- Protest the appraisal with documentation of your upgraded expenses.
(We sent a 10-page fax.)
- Have the buyers make a larger down payment.
When you sell or buy real estate, remember that the certified appraisal is
just one person’s opinion of the value of your home. The opinion that counts
for you is the buyer’s: you want to be sure the buyer values your home above
all others.
Copyright © 2005
Jeanette Fisher All Rights Reserved.
Jeanette Fisher, author of Sell Your Home for Top Dollar--FAST,
Staging Houses for Top-Dollar Sales, Doghouse to Dollhouse for Dollars:
Using Design Psychology to Increase Real Estate Profits, and other
real estate and interior design books, teaches Design Psychology and real
estate investing seminars.
More information on Design
Psychology
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