Lorraine Ryall
When you are selling a home, it’s great to hear we are still in a very strong seller’s market, with more demand than supply.
We are seeing a lot of multiple offers and buyers offering above the list price to be the highest bidder. This is especially true in the $350K and under price range. Getting the top price or above for your home is what every seller wants, but don’t start counting your proceeds just yet. There still is another major hurdle to get over and one that sellers tend to overlook—the appraisal.
With sellers listing for the top price and prices getting bid up, appraisers are having a hard time appraising homes for the higher contract price. Just because a buyer is willing to pay the higher price doesn’t mean that is what you can sell for. Why? The appraiser will use comparables of similar homes sold within the past 6 months. There is an adjustment that can be made for being in a strong seller’s market that adds additional value, but this still may not be enough to increase the value to the higher purchase price.
When is the Appraisal Ordered?
The appraisal is ordered by the buyer’s lender to determine whether the purchase price is a true market value of the property. It usually is ordered once the inspections have been completed. Because you may be weeks into the closing process before the appraisal is completed, you want to do everything you can to help the appraiser meet the value. If you would like a copy of my Appraisal Dos and Don’ts, please contact me directly.
What Happens if the Appraisal Doesn’t Meet Value?
At this time, the buyer can withdraw his offer and get his earnest refunded. What usually happens rather than a cancelled contract is the seller agrees to sell for the lower appraised value, or seller and buyer agree on a new price. Negotiating between the buyer and seller is the most favorable for both parties. However, it may not be an option for some buyers if they don’t have the additional funds needed.
For Example
If the purchase price is $350,000 and the buyer is putting 10 percent down, the loan amount will be $315,000 and the down payment will be $35,000. The lender will only lend 90 percent of the purchase price or appraised value, whichever is lower. If the appraised value comes in at $330,000, the lender will only lend $297,000, the buyer would need to come up with the difference of $17,000 ($53,000 – $35,000) if they purchase the home for the agreed price. If the buyer doesn’t have any additional funds available, the only options are to accept the appraised value as the new purchase price or to cancel the contract and find another buyer.
Another area where an appraisal may become an issue is when the buyer is asking for closing costs to be paid for by the seller. When we are in a seller’s market, if a buyer needs closing costs, he may need to add that amount to his purchase price. So, now you have a double whammy. Not only is the purchase price higher to start with because we are in a seller’s market, but now you have added an additional amount to cover the closing costs. So, the appraisal must not only meet the higher price but also exceed it to include the closing costs.
For Example
If the home is selling for $350K and the buyer is asking for 2 percent closing costs, that’s $7,000. If the offer were full price, with the closing costs, the total would be the equivalent of getting an offer for $343K. So, instead, the offer would need to be $357K. This gives the seller the full purchase price after contributing the $7,000 to the buyer for closing costs. Now, the appraiser has to appraise the home for $357K instead of the actual purchase price of $350K. When sellers are asking and getting the top price for their homes, adding closing costs to the price can make it even harder for the appraiser to meet the contract price. There are ways around this, so make sure you talk with your Realtor about different scenarios and what your best options are.
Frequently Asked Questions:
When is the appraisal ordered?
Typically, it is ordered after the inspections are complete but can be ordered at any time.
How long will the appraiser be at the house?
Approximately 30 minutes to an hour, depending on the size of the property.
How long does the appraisal take to be completed?
This will depend on the type of loan and the lender. On average, however, it will take two to five days to get the appraisal assigned once it has been ordered, and then an additional five to 10 days after the appraiser has come to the home to get the report completed and back to the lender.
Who pays for the appraisal?
The buyer pays for the appraisal at the time it is ordered through his lender.
Can you dispute an appraisal?
Yes, but it is very time consuming and hard to do, and there is less than a 10 percent chance of increasing the valuation after an appraisal. This is why it is so important for your Realtor to have her report for the appraiser at the time of the appraisal.
Your Realtor can play an important role in the appraisal process. Some Realtors do not provide any additional service for the appraisal, which may prove to be a costly mistake. In today’s market, it is crucial you choose a Realtor who will meet the appraiser at your home and provide them with their own Appraisal Report to assist the appraiser in meeting the higher value.
If you have any questions, or for more information on what you can do to prepare for the appraisal, please contact me directly.
Lorraine Ryall has been a Multi-Million Dollar producer for the past nine years. If you are thinking of buying or selling, and you would like more information or a market analysis, please contact me at Lorraine@Homes2SellAZ.com, or call (602) 571-6799. Visit my website at Homes2SellAZ.com.