CAN APPRAISALS KEEP UP WITH THIS FAST-MOVING MARKET?
For those of you who are about to jump into the spring market, you may want to familiarize yourself with how appraisals work because it’s not just a matter of buyers finding a seller who will accept their offer over the 9 other offers they received. And if you are the seller it’s not just finding the highest offer presented because the home still has to appraise! So here are a few tips to understand how the appraisal process works and how to avoid having your appraisal trip up your closing.
Real estate markets aren’t static, right? As you have probably already heard, the housing market is on fire right now, but when a market is as “hot” as the current one, it presents problems for homebuyers AND sellers causing a lot of buyers to feel they need to offer sometimes substantially more than the asking price in order to be competitive with the multiple offers coming in.
HERE’S WHAT HAPPENS WHEN AN OFFER IS ACCEPTED:
The buyer’s lender will be sending an appraiser out to the home and they will gather all the information needed to compare it to other homes that have recently sold to determine its value.
For this method to produce reliable results, however, the market must be active, with enough recent sales to use as “comparables.”
When a market is overactive, with home prices rising rapidly, like the current market, problems arise. When a home sells, prices may rise between that sale and the time your home hits the market.
But there is no comparable sale for the appraiser to use. Does the appraiser base the value of your home on the pre-price rise in sales? Sadly, the answer is yes.
The strongest indicators of current value are those comps which have closed within the past 90 days but pending sales and listings are only used on the appraisal report to show what the current market is DOING and where it’s headed.
Unfortunately, appraisers do not consider pending sales or listings in their final opinion of value. When historical data lags the market’s reality, agreed-upon prices and appraised value often don’t match,
SO WHAT’S THE SOLUTION?
One way to mitigate the challenges of a red-hot housing market is to get your ducks in a row before the appraisal.
First off, sellers, make sure your realtor goes over the 3rd Party Financing Addendum with you so you clearly understand the pros and cons of each offer that has been submitted. Examples of things to look for would be:
How much is the buyer planning on putting down? THIS MATTERS!
If the appraisal comes in low, will the buyer have room to adjust what they are putting down in order to offset a low appraisal value OR is the buyer only putting the bare minimum down? This is why sometimes the highest offer isn’t always the best. Look at ALL the terms of the contract.
Another helpful tip is to take inventory of any upgrades and other improvements you’ve made to the home. Create an itemized list of them, the dates they were performed and include a copy of invoices, if possible. Have these available for your Realtor so she can provide a thorough case to the appraiser as to why your home should be priced as it is.
If the appraisal of your home comes in lower than the negotiated sales price on the contract, the appraisal can be challenged but I can tell you it very rarely changes the result once the appraisal has been submitted, so don’t leave the appraiser in the dark about your improvements and make sure your realtor is submitting all the positives about your home to the appraiser BEFORE the appraisal is done.
Finally, fiery real estate markets such as what we’re experiencing right now are a dream come true for sellers… unless prices are rising so fast that the market can’t keep up! I cannot express how important it is to have an experienced Realtor helping you through this process.
When making your decision on who you want representing you, you want to be certain they have the knowledge and persistence to ensure they are providing future appraisers with accurate comps and detailed information about your home to support your pricing and I for one will 100% take every opportunity possible to ensure the appraiser is fully informed on the merits of your home.
Hope you have found this information helpful! My goal is to provide valuable info every week!
Are you interested in purchasing a home in the Dallas metroplex? Hop over to my website for the most current and up to date homes available. www.yourtexasnest.com
