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Friday, February 24, 2017

What Happens If the Appraisal Comes in Low?

If for whatever reason a home doesn’t appraise, here are each side’s options in how to proceed.
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What happens when a home doesn’t appraise?  
Whether you’re a buyer or a seller, the first order of business is to make sure the appraisal was done correctly. Our local appraisers do a good job, but occasionally we’ll get an out-of-town appraiser who doesn’t know the market or just does a bad job. However, if it’s determined that the appraisal was legitimate, what are each side’s options?

If you’re a homebuyer, as long as you’re still in your appraisal contingency, you have three options:
  1. Ask the seller to adjust the price down to the appraised value. If they agree to that, we adjust the price and you buy the house for less than what you thought you were going to.
  2. Terminate the contract if the seller doesn’t agree to lower the price.
  3. Bring additional cash to closing and purchase the house at a higher price. The lender will only loan on the appraised value or the purchase price—whichever is less. Say you’re under contract for $210,000 and the appraisal comes back at $205,000. On top of your down payment, you’d also have to bring in an additional $5,000 to bridge that gap between $205,000 and $210,000 because your loan will be based off $205,000.
Whether you’re the buyer or the seller, everything is open to negotiation.
If you’re a seller and the buyer is still in their appraisal contingency, you also have three options, but they’re the inverse of what the buyer is facing:

  1. Reduce the purchase price down to the appraised price.
  2. Refuse to lower the purchase price, in which case the buyer has the option to either walk away or pay extra.
  3. Negotiate between the appraised price and the purchase price and end up somewhere in the middle. Remember—everything is open to negotiation.
We work with good, local appraisers and lenders, so most of the time this situation doesn’t happen. If we do have a problem, though, we know how to work through it and resolve the situation for both parties.
If you have any questions about this topic or there is anything I can do for you whether you’re a buyer or a seller, please don’t hesitate to reach out to me. I’d be happy to speak with you.

Tuesday, February 14, 2017

How Do Rising Prices Affect Appraisals?

Home values are on the rise in the Athens market, but rising values can often signal appraisal issues. Here's where our market currently stands on that issue. Looking to sell a home in Athens, Georgia? Click here for a Home Price  Evaluation
Looking to buy a home in Athens, Georgia? Click here to perform a full home search
The Athens market is improving and prices are on the rise. However, rising prices can cause issues with appraisals. Any time a property changes ownership and the buyer gets a loan, the lender will require an appraisal. So are properties appraising now that values are going up? Our experience has been that properties aren't having appraisal issues on either the buyer's or seller's side. Of course, you want a house to appraise because you want the deal to work out.
Sometimes, sellers are concerned when I tell them that they can price their home above what past sales show due to low inventory. The concern is that the house won't appraise at a value above recent sales even if it sells at that price. So how does that work?
An appraiser's job is to justify a home's sale price to the bank.
The appraiser knows the purchase price of the contract before they perform the appraisal. It sounds crazy, but what it boils down to is that when a bank hires an appraiser, their job is not to determine the value of the property (the market determines value), but to justify that price and value for the bank. The bank wants to be sure they don't lend more money on the house than it's actually worth. When the appraiser knows the purchase price, their job is to pull sales and make adjustments to show that the purchase price is a realistic, fair market price that the bank won't be overpaying for. Most of the time, as long as an appraiser can do this within the appraisal guidelines, they will. Most of the time, we've been coming out OK.
Next time, we'll discuss exactly what happens for buyers and sellers if a house appraises low. In the meantime, if you haven any questions or you're thinking of buying or selling a home in the Athens area, give me a call or send me an email. I'd be happy to help you!