You’ve just accepted an offer on your home, the buyer is satisfied with the building inspection results, now smooth sailing until the closing date, right?
Guess again. Findings show that 12 % to 13 % of contract cancellations were caused by low home appraisals.
Here is the common scenario:
The seller lists the home for $225,000; the buyer offers $175,000 and they settle on a $200,000 sales price. A week before closing the appraisal comes in at $165,000.
Then what happens?
The seller has already come down on their price, they do not want to go any lower. The buyer isn’t going to pay more than the appraised value, or may not even have the extra cash to do so.
What is causing these ‘short’ appraisals?
Lack of recent comparables area home sales (“comps”) making it difficult for appraisers to determine the current market value
Foreclosures and short sales ‘skew’ the comp values.
Some lenders are using appraisal management companies (AMCs), whose pool of residential appraisers include those with limited training and/or little familiarity with the area being appraised.
What can you do to protect yourself?
Buyers:
- Tell your lender you prefer to use an appraiser who comes from your county.
- Request that the appraiser have a residential appraiser certification and a professional designation (SRA-Appraisal Institute’s Senior Residential Appraiser, MAI-Member of the Appraisal Institute).
- Meet the appraiser when he/she inspects the home and share your knowledge of recent short sales and foreclosures that might skew the comps.
Sellers:
- Get an appraisal from a qualified appraiser (do your homework!) before you list your home.
- Use this appraisal to set a realistic price for your home.
- Give a copy of this appraisal to the buyer’s appraiser. This will give the appraiser useful data and another perspective.
- Question a low appraisal. Some maybe simply due to human error.
Check out full Bankrate.com article