Could Your Appraisal Come in Too Low?

The current seller’s market has advantages for those looking to get the most return when selling their home. But if buyers enter a bidding war on a property, what happens if the final agreed upon selling price is above what the bank appraiser says it’s worth? Just because both sides agree on a price doesn’t mean the deal can’t fall apart because of an under-appraisal.

For example: A seller lists their house for $325,000, and a couple of potential buyers enter into a bidding war that ends in an offer of $335,000 being accepted. That buyer wins, right? Maybe.

It may happen that a week before closing, the appraisal comes in at $320,000 - the maximum that the bank or mortgage company is willing to lend. Who’s going to make up the $15,000 shortfall? If the seller won’t take less and the buyer can’t come up with the cash, the deal could fall apart.

Could this happen to me?

It can happen if there was aggressive pricing on the home to begin with and a few buyers were willing to keep upping the offer to beat out the competition. But in general, appraisers right now have numerous comps (recent sales of similar homes in the area) to base their appraisal on, and homes are selling fast and values are on the rise.

This trend of fast sales and rising values supports getting the solid appraisal that you need. So you should not panic about the upcoming appraisal if you have offered (or as a seller, have received) a higher than asking price offer.

There are also a few things you can do to help with getting a solid appraised value on the home.

For buyers:

• Tell your lender to find an appraiser who comes from your county, or perhaps a neighboring county. They need to know the market. After all, you’re paying him or her.
• Request that the appraiser have a residential appraiser certification and a professional designation. Examples include the Appraisal Institute’s senior residential appraiser (SRA) or member of the Appraisal Institute (MAI) designations. They should know their business and be fully trained and certified.

For sellers:

• Clean and prepare the home for the appraiser. It certainly doesn’t hurt to show that you maintain the property and the home well. Rooms should be free of clutter and appear as big as their measurements indicate.
• Make certain all systems are functioning – and if they’re not, repair them. Toilets should flush, the furnace should work, and all light switches should function, just for examples. FHA appraisers focus on this.
• Question a low appraisal. There’s always a chance the appraiser or a supervisor will take into account new or overlooked information.

Buying or selling can be stressful, but your appraisal should come back to support the loan, providing the offer didn’t go above and beyond reasonable market value.