When you buy or sell residential real estate in Glendale, it is common to finance a majority of the purchase price. The banks want to know that it’s money is secure- so they send a certified appraiser to render an opinion of value. I think most of my intelligent and savvy readers know this
The reason an appraisal is impoprtant is simple- if the home does not appraise for the sales price, the bank may not lend enough money to complete the sale. Everyone is unhappy.
In today’s, post-credit melt down environment, the appraisal has become a major factor in whether or not a home can close escrow. Horror stories of the home “not appraising” and subsequently coming back on the market are rampant.
Why would a home not appraise for the sales price?
For this discussion I am going to assume there is no fraud or hanky panky going on.
We are dealing with a number of historic problems with today’s home appraisals. It starts with the new, more stringent, rules for the appraisers. They are limited to the types of homes they can use as comparison properties. For example, in the past it was common to use homes that had sold within six months of the current sale. Today, appraisers are often limited to sales within the last three months.
Another problem is the low volume of homes that have sold recently. Few homes sales means fewer comparison homes to choose from.
One of the hardest problems, however, are appraisers who are not local. In order to cut down on fraud the regulators want to make sure that the appraisers are not “in bed” with the mortgage brokers. Good idea, bad execution. An appraiser who is from Rancho Cucamonga, for example, has no way to assess the subtleties of location and value in Glendale. “Is the home above or below Kenneth Rd.?” or “are you east or west of Canada?” are important value considerations that a non local has no hope of grasping.
What happens when a home does not appraise?
We will cover the negotiated options in a moment, but there are a few things that can be done before that point.
- Make sure you agent knows they can refuse the appointment if the appraiser is non-local.
- Have your agent provide great information to the appraiser including:
- Comparable sales annotated with additional information
- A list of upgrades and improvements
- Challenge the appraisal in writing
- Ask for another appraisal
If that doesn’t work, it is time to negotiate
Every situation is slightly different, but here are the basic options:
- the seller lowers the price to match the appraised price
- the buyer brings in enough cash to bridge the gap between loan and sales price
- buyer and seller agree on a combination of the above
- everyone walks away and looks for new dance partners
Any of these options are possible and there is no hard and fast rule on what you should do. It is a myth, however, that the seller HAS to lower the price to match the appraisal.
The moral of the story…
Closing a real estate transaction has never been so complicated or difficult. There are five different ways that a great real estate agent can increase your net profit- one of the most important is the ability to problem solve once the home is in escrow!