In this market we are frequently seeing more homes appraise at less than the agreed upon price in a sales agreement. Here are a few tips to help you avoid this problem and the options you have when this occurs. How to avoid a low appraisal:
Perform a market analysis on your listings weekly. This report should include all active, pending, and sold properties in their neighborhood and competitive market. The Property Investment Profile tool is the perfect solution to this sort of communication with your seller.
Every week talk to agents with recent closings to find out if any seller concessions were offered that might affect the final sales price an appraiser will use in a report.
Track price reductions and new listings coming on the market that might affect your appraised value. The HomeFinder Pro report is the fastest tool to inform you and your seller of these types of changes in the market. Within 10 minutes of a price reduction or a new listing hitting the market you and your client can be informed via email.
Track list price to sales price ratio for sold properties in your listings competitive market area. An appraiser is now required to adjust all active comparables using this ratio.
Before your clients agree to a final price on a home, perform a final market analysis to make sure the price will be substantiated when the appraisal is completed.
Finally, always price ahead of the market when prices are declining.
Options when the appraisal comes in low:
The seller can reduce their price to meet the appraised value of the home and the sale can proceed to closing.
If concessions are being offered to the buyer, the seller may ask that they be reduced or eliminated to bring the sale price in line with the appraised value. The buyer will have to decide if they are capable of purchasing the home without the requested concessions.
The parties to the transaction can challenge the appraisal. This was much easier to do before May 2009, when the appraisal process was handled locally and the agents worked directly with the mortgage broker and appraiser to present documentation to justify the agreed upon sales price. Under new Fannie Mae and Freddie Mac guidelines, appraisal management companies now handle an appraisal challenge. This can be a very time consuming process. If the challenge results in a review appraisal, the parties risk the new value coming in even lower than the first appraisal value.
The buyer and seller can terminate the transaction and go their separate ways.
I hope these tips are helpful. Make it a great day!