I was recently on the receiving end of a VERY disappointing appraisal.  I was the listing agent on a townhome in Prince Georges county where the seller received a good offer.  It was only $10,000 below the full asking price.  After reviewing the offer with the seller and reviewing the comparable sales, the seller decided to accept the offer.

Everything was moving along nicely.  The selling agent was great.  The buyer was on top of everything.  My seller was packing, hiring movers, renting storage space, exploring options on where to buy.  The home inspection was clean and all contingencies were removed.  Except one.  The appraisal.

The appraisal is a part of the sales process that can either make or break a transaction.  You see, when a buyer decides to buy a home and seeks financing, the bank wants to protect both the buyer’s interests as well as it’s own.  It wants to ensure the home is worth what the buyer is going to pay for it. 

Here is what happened.  The appraisal came back extremely low.  I reviewed the comparables the appraiser used to ascertain value.  Much to my surprise, he was using only foreclosures or short sales (pre-foreclosures) to determine value.  I elected to challenge the appraisal via an appeal.  I offered the appraiser my rationale and comparables to justify a higher value.  He rejected the appeal.  When I asked why he used only foreclosures and short sales, he said because the majority of the homes in that area in the most recent 90 days were foreclosures.  Yikes!

He was right.  The closed sales in the most recent 90 days were in fact either foreclosures or short sales (I like to call them distressed sales because the sellers had to sell due to a financial hardship and would most likely not sell at that price if they weren’t forced to sell).  There were a couple of things that took me aback about this scenario.  First, in the past, we would use comparables from the most recent 180 days, not 90 days.  Secondly, if there were non-distressed sales and distressed sales, the appraiser would throw out the foreclosures and short sales and use the ones that were arms length (not distressed). 

Why do I share this story with you? Because I want to make you, the consumer, aware of the factors that control our marketplace.   The appraisal is one such factor.  As a listing agent, it is one of my highest priorities to inform the seller of what I feel the market will accept as a listing price to sell his home.  One challenge that faces a listing agent is that the seller naturally wants to get more than the market will bare.  So, it’s for this reason why I caution sellers against the strategy of pricing too high to see what happens.  Even if an uniformed buyer decides to fall in love with the home and pay top dollar for it, the appraisal can destroy the transaction.

What happens if the appraisal comes in low? There are decisions that must be made by both the buyer and the seller.  First, the bank will not lend the buyer more money than the appraised value.  Period.  The seller can reduce his price to the appraised value.  The buyer and seller can agree to split the difference between the sales price and the appraised value.  The buyer can decide to pay the full difference out of pocket.  Finally, the contract can be called null and void if there can be no resolution.

Be aware of your market.  If you live in Maryland, sign up for my automatic alerts to your neighborhood values.  Go to seller resources and input the information requested and you will receive great information on what is selling in your area, what has sold and what is currently on the market.  It is real time and will keep you informed so when you are ready to sell, it will take the guesswork out of where you should list your home to sell.

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