For any type of Mortgage Financing, it is a standard practice for a prospective lender to order an appraisal of a subject property, in an effort to protect the investment for both the Lender and the Home Buyer. Unfortunately, these appraisals can have profound effects on the outcome of real estate transactions. In today's market, for instance, we are starting to see more and more deals fall through because of an appraisal that came in under value. Real Estate Agents are being made to act as loss mitigators, attempting to find some sort of common ground between a Buyer and a Seller, in the aftermath of an appraisal.
The ideal scenario, in this instance, would be for the Seller to reduce the sale price to appraised value. Unfortunately, if the difference between the sale price and the appraised value is too great, many Sellers are often either unwilling, or unable to adjust the sale price appropriately. From this point, the Home Buyer must provide the excess proceeds to make up the difference, or else lose their purchase by failing to meet their financing contingency.
In a less damaging, more acceptable scenario, a Buyer may elect to share the burden with the Seller, each party contributing a certain amount to make up the difference between the appraised value and the sale price. However, this does not happen very often in today's market, as many Buyers find themselves in need of closing cost assistance, and, therefore, unable to come up with any additional funds above and beyond that which was originally planned and set aside for their home purchase.
It's been said that nearly 30% of real estate transactions in our area are lost for this very reason....who's to blame? Is it really worth it to challenge an appraisal??
As agents, it's our responsibility to prepare our clients for the worst case scenario. When we list a home, if it is priced "correctly", according to fair market value (based on a Comparative Market Analysis, of course...), in theory, there shouldn't be any problem with regards to the appraisal. Unfortunately, this is not the case, as many appraisers will tell you (as I have been told) that the comparables we select as a basis for establishing list price, do NOT necessarily correspond to that of an appraisal. Not only this, but communication with an appraiser is very limited, and many times, there doesn't seem to be a rhyme or reason for how an appraisal is put together. As Agents, working with our respective lending partners, we are forced to simply accept these appraisals without question. On the other hand, how will we ever acheive higher property values if the appraisals keep pushing values down...? Should we work strictly with Cash Buyers?? It presents a very complex dilemma, and nobody seems to have the correct answer.
As a caveat to Buyers and Sellers in the Metro Detroit Real Estate Market, be wary of the appraisal! It could make or break a deal! But remember that every situation is different - local Markets with relatively stable property values may not have this problem. Be sure to discuss with your Agent and their preferred Lending Partner exactly how an appraisal could affect your real estate transaction.
The ideal scenario, in this instance, would be for the Seller to reduce the sale price to appraised value. Unfortunately, if the difference between the sale price and the appraised value is too great, many Sellers are often either unwilling, or unable to adjust the sale price appropriately. From this point, the Home Buyer must provide the excess proceeds to make up the difference, or else lose their purchase by failing to meet their financing contingency.
In a less damaging, more acceptable scenario, a Buyer may elect to share the burden with the Seller, each party contributing a certain amount to make up the difference between the appraised value and the sale price. However, this does not happen very often in today's market, as many Buyers find themselves in need of closing cost assistance, and, therefore, unable to come up with any additional funds above and beyond that which was originally planned and set aside for their home purchase.
It's been said that nearly 30% of real estate transactions in our area are lost for this very reason....who's to blame? Is it really worth it to challenge an appraisal??
As agents, it's our responsibility to prepare our clients for the worst case scenario. When we list a home, if it is priced "correctly", according to fair market value (based on a Comparative Market Analysis, of course...), in theory, there shouldn't be any problem with regards to the appraisal. Unfortunately, this is not the case, as many appraisers will tell you (as I have been told) that the comparables we select as a basis for establishing list price, do NOT necessarily correspond to that of an appraisal. Not only this, but communication with an appraiser is very limited, and many times, there doesn't seem to be a rhyme or reason for how an appraisal is put together. As Agents, working with our respective lending partners, we are forced to simply accept these appraisals without question. On the other hand, how will we ever acheive higher property values if the appraisals keep pushing values down...? Should we work strictly with Cash Buyers?? It presents a very complex dilemma, and nobody seems to have the correct answer.
As a caveat to Buyers and Sellers in the Metro Detroit Real Estate Market, be wary of the appraisal! It could make or break a deal! But remember that every situation is different - local Markets with relatively stable property values may not have this problem. Be sure to discuss with your Agent and their preferred Lending Partner exactly how an appraisal could affect your real estate transaction.
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