It’s always frustrating, if not maddening, when the appraisal comes in low on a sale of a home. Buying a home is very emotional for both buyers and sellers, and the last thing anyone wants is some appraiser telling the parties involved that the home isn’t worth what they agreed upon. Personally, I don’t know of any appraiser who likes coming in low on the sale of a home; frankly it’s a major headache. If there is a true arm’s length purchase agreement between a willing and knowledgeable buyer, and a willing and knowledgeable seller – that is the very definition of market value!
The challenge comes when buyers want to use someone else’s money for their purchase, the banks. Appraisers don’t make the market; they interpret it, and give their opinion of value based on that interpretation. But, any interpretation or opinion of value also has to follow standards set by: USPAP, Fannie Mae, Freddie Mac, HUD (FHA), investor guidelines (Wells Fargo, B of A, Flagstar, etc.), and the originating lenders guidelines. Then appraisers have to meet all of those guidelines, using a reduced number of available comparable sales.
What we have now is banks wanting appraisals with perfect comparable sales. They are also enforcing the strictest lending and appraisal guidelines in history. Add to that the fact that there are less comparable sales than normal, and buyers (and sellers) are at the mercy of the current “comparables.” It doesn’t necessarily mean that the home’s value is absolute, it just means that buyers can only borrow against what an appraiser can prove on paper. And, without a loan, there’s no sale. If a home is unique, it may be more difficult to find quality comps. In that case, the home may appraise below the contract price. Buyers are also learning that just because the appraisal is below the contract price, it does not automatically mean the price they agreed to pay isn’t fair. There are so many “it depends” situations in selling a home today, a good Realtor® can make the difference between simply getting frustrated with the process or getting your home sold.
For a seller, the best thing to do is to have an appraisal done first (and a home inspection). The most knowledgeable Realtors® will tell you that having an appraisal done, prior to listing your property, is just a necessary ingredient in today’s real estate process. If you really want to sell your home in this highly competitive market, you have to know upfront what a typical buyer may be able to borrow on your home. Pricing and condition are both critical to attract a buyer in this market. Real estate has always had cycles of buyer’s and seller’s markets. Today, it is a buyer’s market if there ever was one. They want it all, and they want it at a bargain price.
Right now, in most markets, the reality is there are more sellers than buyers. Sellers have set a realistic price to begin with, and find a Realtor® who understands what it takes to get a home sold in today’s marketplace. Sellers need to think like buyers. Have a pre-listing appraisal, look at the current competition, and price your home to move to the head of the class. You only get one shot at a first impression. No price reduction later ever has the same effect. If you want to sell your home today, you have to come armed with the ammunition to win the battle for buyers. By Michael Bolton & Hamp Thomas – Carolina Appraisers – Southern Pines, N.C. firstname.lastname@example.org.