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Tips to Avoid a Low Home Appraisal


If you are considering buying or selling a home in the future, it is important to know that the appraisal can make a critical difference in whether the deal actually goes through or not.

For most home buyers and sellers, one particular scenario is becoming increasingly common. The seller lists the home for $250,000 and the buyer offers $200,000. After some negotiation, both finally agree on $225,000. The week prior to closing, the appraisal comes in at $210,000, which is the most that the mortgage company or bank is willing to lend on the purchase of the home. This creates a $15,000 shortfall and the question of who is going to make up the different. Such a shortfall is certainly not a small amount of money, which is why more and more contracts are falling apart. In such low home appraisal scenario, the seller is really not able to drop the price any further and the buyer likely does not have the cash available to make up the difference either or simply may not be willing to pay more than the appraised value of the home.

In a declining housing market, short appraisals typically increase due to a lack of comparable area home sales in the recent past, commonly referred to as 'comps.' A lack of comps can make it hard for appraisers to arrive at a current market value. When the sales of homes begin to slow down, it does not take long for comps to quickly grow old. When you add in short sales and foreclosure, appraisals become even more unreliable, which can sometimes threaten a deal even when the buyer and the seller have previously agreed on a sales price for the home.

The recent addition of the Home Valuation Code of Conduct, also known as the HVCC, has certainly not helped matters any. Fannie Mae and Freddie Mac lenders are prohibited by the HVCC from having any direct contact with appraisers. Instead, most lenders have now chosen to work through AMCs or appraisal management companies. Consequently, such a pool of appraisers might have very little familiarity with the geographic area that is actually being appraised. In some cases, it also means they have very little training as well, which can cause even more problems.

The National Association of Realtors has recently called the new code into a question as a result of a recent avalanche of appraisals that were questionable. The professional organization found that a whopping 12% of home buyers in the last year experienced the cancellation of a contract as a result of questionable appraisals. Such problems were frequently in the low single digit percentage range prior to the introduction of the HVCC.

Such problems can certainly be an issue for the buyer, but the seller is the one who typically suffers the most when a contract falls through because of under-appraisal. A low home appraisal often results in a permanent mark being placed on the property which can make it even more difficult to sell. For some sellers, this can mean that their home sits on the market for months longer than necessary and could result in missing out on the opportunity to find a buyer.

Home buyers and sellers alike can protect themselves from a low home appraisal; however, by taking some critical steps. If you are a buyer, ask your lender to locate an appraiser from your local area. You can also request that the appraiser who handles your property have a residential appraiser certification and a professional designation such as the SRA. When the inspector arrives to inspect the property, it is also a good idea to make sure you are present to share any knowledge you might have about recent foreclosures or short sales in the area that could cause the comps to be off.

Sellers might wish to consider obtaining an appraisal before they list their home to help guide them in establishing a listing price that is realistic so they will not run into any problems later with an appraisal that is lower than the sales price. Providing a copy of the prelisting appraisal to the buyer's appraiser can help as well by providing them with additional data as well as another perspective.

Finally, keep in mind that if you do receive a low home appraisal, you can certainly question it. There is always a chance that the home appraiser will take into account information that is new or has been overlooked and will be willing to revise their original appraisal based on that information.


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