Here’s how sellers can avoid appraisal issues when listing their property.
How can you avoid appraisal issues as a seller?
Before answering that question, let’s talk for a moment about value. Many of my team’s buyer clients ask us what their options are if they submit an offer on a home but the appraisal doesn’t match that value. The thing is, value is a relative term. In other words, a home is only worth what a buyer is willing to pay for it.
When a buyer gets a loan to buy a home, they must get an appraisal, but this appraisal isn’t designed to protect the consumer—it’s designed to protect the lender. Appraisals exist because, if a lender allows a buyer to borrow money, they need to ensure that they’ll be able to recover their funds if the buyer can’t pay back their loan and they have to foreclose on the home and sell it.
Appraisers will do their best to justify the price a buyer offers for a home, but there’s a bit of a disconnect with the process because they justify value based on past sales. These past sales can be anywhere from one to six months old, and the market is changing rapidly. When I work with a seller, my job is to justify the highest possible price based on future values. What will a homebuyer pay for this property? What do we have to do to get them to see the value of it?
A seller accepting an offer for a price the appraiser can’t justify is a common occurrence in our low-inventory, high-demand market where homes are selling for record prices. Homes are selling at never-before-seen prices, and it’s hard for a conservative lender to justify this.
So, to avoid future appraisal issues, the solution is simple. If you have an offer with a price you don’t think can be justified by an appraisal, do your due diligence and make sure the buyer has enough funds to cover the gap. Again, a home is only worth what a buyer is willing to pay for it. If a buyer wants to pay more for a home than what the appraiser thinks it’s worth, that’s on them.
In this situation, we’ll remove the appraisal contingency, which states that if the home appraises for less than what the buyer agrees to pay for it, they have to pay the difference in cash. The buyer will have to increase their down payment to cover that gap because the lender will only lend you a certain amount of the appraised value for your loan.
There’s a lot more that goes into this, but we at the Robert Mack Group have spent the last seven years dissecting the home-selling experience. We’ve identified the pain points such as this and do everything we can to get in front of this issue to reduce friction during the transaction. Make sure you work with an agent who understands this because the last thing you want is the buyer renegotiating the price of the property because their appraisal came in low.
Keep in mind that appraisers are human beings. If you were to hire three or four of them to appraise the same home, it wouldn’t be unusual if they all came back with a different value.
If you want your home sale to be a smooth transaction, please give me a call. If you’re curious about your home’s value or have any other real estate questions, feel free to reach out to me as well. I’d love to help. Until then, happy selling!