When you sell your home, appraisers use comps (comparable market sales) of
local properties sold within the last six months to value your home. With
today’s rapidly rising seller’s market, six-month-old information is ancient
history. Appraised value does not always equal the true market value, or what
the home will sell for on the open market.
Realtors will give you a comparative market analysis, an informal estimate of
market value based on comparable sales. Lenders, on the other hand, will use the
appraised value to determine a new mortgage amount. Some lenders require that
the stated property value covers the mortgage amount plus their selling costs in
case of foreclosure. For this reason, a sale may fall through if a home sells on
the open market for more than the appraised value, which often happens in
bidding wars over hot property.
We learned the importance of securing a sufficiently high appraisal when we
sold a rental property in Lake Elsinore, California. We listed the house for
$234,700 on Friday. By Monday morning, we had three offers: $245,000, $255,000,
and $260,000. We accepted the one for $255,000 because the buyers had $80,000
down, reassuring us that they had sufficient funds.
As usual, the lender sent an appraiser to review the property. This busy
appraiser didnt take the time to view all the upgrades we put into the
custom-built home. Even worse, he used only comps from the local one-mile
radius. Because this home is close to a shopping district, there were not many
homes sold in this limited area during the six-month period.
The appraiser used comps six months old; during this time housing costs in
Southern California appreciated around thirty percent. Sales from six months
previous should have gone up in value by $30,000 on a $200,000 home. This means
that our home should have been worth $250,000 to $260,000, especially since
buyers are willing to pay this price on the open market. To increase the value
of this home, at the time there was not another three bedroom home listed in the
area for under $250,000 (excluding manufactured homes). However, the appraiser
valued our home for only $230,000 -- and we would have lost the sale if the
offer did not include a sufficient down payment.
Because a low appraisal can kill your sale, finding a buyer with a large down
payment provides you with a safety net. You may also choose a buyer with strong
credit who doesnt have to put a large percentage down. If you think that your
home’s appraisal could become a problem, make sure you dont include a clause in
your sale’s contract which states "subject to appraisal."
How to Avoid Low Appraisals
- Hire your own appraiser before the sale. Then ask your buyer’s or lender’s
appraiser to review your appraisal.
- Retain the option to approve your buyer’s mortgage lender. Make sure that
the buyer doesnt use a lender with a history of deliberately underestimating
property values. A good real estate agent should know which lenders routinely
under value homes.
- Keep records of repairs and upgrades, including costs. Take "before" and
"after" photographs. Create an organized journal with a listing of expenses and
include pictures to show to the appraiser during the appraisal appointment.
Stage your home for the appraiser like you do for buyers.
- Secure your own property comparables to make sure the appraiser uses
complete information. Call real estate agents with homes in escrow and get the
sales prices. Make a list of these properties with the agent’s phone numbers and
give it to the appraiser.
What to Do When Your Selling Appraisal Comes in Too Low:
- Ask for another appraisal.
- Protest the appraisal with documentation of your upgraded expenses.
- Have the buyers make a larger down payment.
When you sell or buy real estate, remember that the certified appraisal is
just one person’s opinion of the value of your home. The opinion that counts for
you is the buyer’s: you want to be sure the buyer values your home above all
others.
Copyright (c) 2005 Jeanette Fisher, All rights reserved.
Jeanette Fisher, author of Sell Your Home for Top Dollar--FAST, Staging
Houses for Top-Dollar Sales, Doghouse to Dollhouse for Dollars: Using Design
Psychology to Increase Real Estate Profits, and other real estate and interior
design books, teaches Design Psychology and real estate investing seminars. For
information on Design Psychology, visit: http://designpsych.com/. For help selling houses, articles, and
home staging tips, see http://www.sellfast.info/.
