Selling your home and it’s a hot sellers market? Everything should be easy, go smoothly. But not so fast.Should you be worried about your appraisal as you’re selling your home in today’s market?
I’m Tom Pietsch with Tom & Cindy and Associates at Long and Foster. I’m here with long-time associate Jim Patrick, and we’re here to talk to you about appraisals in a hot market. And right now here in Northern Virginia, we do have a hot market, but before we even get to that, what the heck is an appraisal, Jim?
Sure. So, an appraisal is an independent estimate of the home’s value. It’s ordered by the bank or the lender that the buyer’s using to obtain their financing. And this appraisal report, this value report, needs to come back either at or above the sales price for the buyer to be able to get a loan for the amount that they’re looking for.
Okay, and what would happen if, let’s say we’re selling a property and it’s sales price that’s been agreed to is $605,000, and let’s say it comes back at 600,000.
So, four things that could actually happen in a scenario like that.
Number One: Buyer voids contract
This is the one that happens the least, is the buyer can exercise their right. They can void the contract and walk away because that appraisal came in low. Realistically, they’re probably going to pursue one of the other three options.
Number Two: Buyer covers the difference
The buyer could cover that difference, that $5,000 gap, they could bring an additional $5,000 to the table to cover that discrepancy.
Number Three: Seller lowers the sales price
Obviously, the seller might have the option to lower their sales price from the $605,000 down to the $600,000 to make that work.
Number Four: Compromise
And then the last piece is, they can negotiate somewhere in the middle. Maybe the buyer brings half, $2,500, maybe the seller will want to lower $2,500.
So, in a nutshell, there’s the four ways that you can remedy a low appraisal.
What seems to happen in real life is that the appraisal typically isn’t complete for three weeks, sometimes three and a half weeks. And so, by that time, with a settlement occurring typically at 30 to 45 days after the ratification of the contract, typically both parties have an incentive to have things go through. The buyer loves the house. The buyer, typically if they’re renting, has given notice, and if they are not renting, they’ve either sold their house or maybe they’re getting their stuff packed up by a mover. The seller has already made their plans for buying a new home. They may even have something else under contract. So, both parties really do want to make it work if they can.
Other than those scenarios, a lot of times we meet the appraiser too, beforehand, so we make sure that this never even happens.
So, if you’re meeting an appraiser, what kinds of things do you do?
First: We’ll put a package together
The most thing we’re going to be putting into that package is the comparable sales in the neighborhood. Obviously, we will pick the ones that help support our sales price, however that might be. Take the best of the bunch and hopefully by making the appraiser’s job easier, he’s gonna use the ones that we give him.
Second: Show off upgrades
We will also show them any of the work that’s been done. We always ask owners for when they did work, what amounts that they know that they put into it for different renovations or replacements to some of the systems.
Third: Personal relationships matter
And then lastly, just because we do so much business, we know a lot of these appraisers. They know us. They know that we price well or that we’ve worked with them in the past, and we want to make their job as easy as possible. Usually, that gets them to listen to us a little bit more to get those values.
So, if you’re a buyer and you want to make your contract more appealing, there’s a lot of things you can do with the appraisal to make that happen. If you’re a seller, again we do everything we can to make sure that the appraisal is not an issue when it does come up.
In the few circumstances where that does come up, where somebody who has done a great job making the house look good, spent a lot of money in upgrades and gotten seven contracts, and maybe the appraiser doesn’t quite see it the way we want them too, we’re there for you to help you negotiate the best solution to that, and then get you through to settlement and on to the next place you’re gonna live.
If you are thinking of selling this year, give us a call. We’d love to help you do it right. Thanks for watching and see you next time.
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