One of the toughest things we have faced in the current real estate market is the appraisal done by the mortgage company. No one seems to mind if an appraised value comes in at or above the contract sales price; HOWEVER, it is a completely different story when the appraisal is lower.
So for example, if you have a contract sales price of $300,000 but the appraised value comes in at $290,000, there are four options (and three out of the four are not good for the seller):
- Cancel the contract and lose the sale.
- The seller can reduce the sales price by $10,000.
- The buyer can agree to reduce the mortgage amount by $10,000 and bring an additional $10,000 to settlement; thereby paying more than the house is "worth."
- The buyer and seller can "split" the difference - the sales price is reduced by $5,000 and the buyer brings $5,000 more in cash to settlement (or some combination thereof).
In almost all cases, the only time a buyer pays towards the difference is if there is a seller assist involved. They will sometimes agree to reduce the seller assist. So for this example, if the contract sales price is $300,000 with a $10,000 seller assist and the appraised value comes in at $290,000, the buyer may agree to reduce the seller assist by some amount.
So there are a few things the seller and the list agent can do if they are worried about the appraisal, it may not always work but it could be the difference between an appraised value of $300,000 or $295,000 versus $290,000.
We know appraisals are supposed to be objective but there is always a subjective element - appraisers are only human and they make the determination of value based on what they see when they look at a home and review the comparable sales. So we suggest:
Sellers should treat the appraisal appointment like a showing (the most important one they will have). Have the home in tip-top shape for the appraisal. Just like with buyers, small details can subconsciously make a difference in an appraiser's mind.
As a general rule: If you wouldn't want your buyers to see it a certain way, don't let the appraiser see it that way either.
As list agents, we personally will meet the appraiser at the property with the list of comparable sales we used to support the value of the home. We will also bring along "negative" comps that we think the appraiser is likely to look on his/her own. We provide our own written assessment why the appraiser should consider some comparable sales and discount others.
So good luck with the appraisal and don't shoot the messenger if your list agent calls with the bad news that the house did not appraise for value. It is a tough market, banks are stricter than ever and scrutinizing the homes they have to loan on. All a seller can control is the condition of the home when an appraiser looks at it (and choosing a good listing agent who will take the time to meet with appraisers doesn't hurt either).
~Lisa
Contact Scott Loper, Associate Broker, Realtor®, RE/MAX Realty Group at 215-513-1333 for help buying or selling a home in Lansdale, Harleysville, Hatfield, Souderton, Skippack, Collegeville, North Wales and the surrounding areas of Montgomery County Pennsylvania. To Search for Homes For Sale in Montgomery County Click Here.
Sellers Should Treat the Appraisal Like a Showing to a Potential Buyer Copyright © 2010, The Scott Loper Team, All rights reserved.
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The Scott Loper Team
Scott Loper - Associate Broker
Lisa Loper - Sales Associate
Gina Wherry - Sales Associate
RE/MAX Realty Group
439 Main Street
Harleysville, PA 19438
Ph: 215-256-1200 x-213
Thank you posting and sharing your informative article.
It's so easy for the sellers to "let their hair down" after the home is under contract but your advice to keep it in showing condition for the appraiser is right on the money.
Lisa ~ I don't like that we have to worry about an appraiser taking into consideration the condition of the homeowner's personal property when conducting an appraisal, but I'm sure it happens. Appraisers are people too, so it's only normal if they are influenced by the perception of a responsible homeowner wanting to present their home in its best possible light! Interesting topic!
Don, Thanks and you're welcome.
Barb, Absolutely, a seller should not relax until all the contingencies are met and no one is coming back to the house until the final walkthrough.
Chris, I agree, but I feel certain there is subjectivity involved. But like you indicated, a seller who gives the impression of being responsible influences everyone (i.e. buyers, appraisers, etc) that the house is well-maintained and therefore "worth more."
~Lisa