With the real estate market in Utah and around the country in a state of flux, many agents representing buyers are starting to deal with appraisal problems. After working hard to put a buyer and a seller together, agents are being sideswiped by appraisals that fall short of the market value.
A low appraisal will take the wind out of your buyer’s sails, but it is not the end of the deal. An experienced agent will already know what to do, but it doesn’t hurt to review:
1) Don’t panic – this can be tough when it appears a sale is about to fall apart. You need to keep your whit’s about you. It’s dealing with complications like these that separate the weekend-warriors from the superstar agents.
2) Take a look at the appraisal. Make sure there weren’t any errors. If the appraiser was unfamiliar with the neighborhood, inexperienced or just a screw-up, it may make good sense to start over and ask for a second appraisal.
3) Compile a list of comparable sales. Underwriters and appraisers often live and die in bubbles of numbers that seem unrelated to conditions in the real world. This can lead to low appraisals.
If you’re dealing with a unique neighborhood, one that may not come across accurately in the numbers – or heaven forbid, a stubborn appraiser that fails to recognize a changing market, submit a list of comparable sales to the underwriter that justify the value.
4) Come up with some cash. The appraisal is strictly there for the bank to determine the loan-to-value ratio. A low appraisal does not mean the bank will not lend. It does mean the bank won’t lend at the agreed upon ratio in contract based on the appraisal.
In this case the buyer can come up with more cash, which may be as simple as lowering the percentage of the down payment – say from 20 percent to 15 percent. In small disputes this will make the most sense. Be aware, though, it may affect the mortgage rate as rates are tiered depending on the down-payment percentage.
In bigger value disputes, the buyer may want to consider taking out a second mortgage to clear up the dispute.
5) Lastly, walk away from the deal. Hard as it is to hear, there may be a very good reason the appraisal came in low. Face the fact that your buyer may be better off with another property. Sadly, you can’t win ’em all.