Q: I’m in the middle of selling my home. Houses are selling like gangbusters in my neck of the woods, so after waiting for almost two years I decided to put my place on the market. We had several offers, and it really was a small bidding war.

I accepted the highest offer and signed the contract, but the appraisal came in $50,000 below the contract price! I have no idea why — my home has lots of upgrades, and several homes in my neighborhood are currently in contract above the asking prices. I suspect the buyer might have done something to keep the appraisal low, because now they’re asking me to lower the price. My agent doesn’t think they did anything underhanded, but is also telling me to lower the price. What are my options?

Q: I’m in the middle of selling my home. Houses are selling like gangbusters in my neck of the woods, so after waiting for almost two years I decided to put my place on the market. We had several offers and it really was a small bidding war.

I accepted the highest offer and signed the contract but the appraisal came in $50,000 below the contract price! I have no idea why — my home has lots of upgrades, and several homes in my neighborhood are currently in contract above the asking prices. I suspect the buyer might have done something to keep the appraisal low, because now they’re asking me to lower the price. My agent doesn’t think they did anything underhanded but is also telling me to lower the price. What are my options?

A: Unfortunately, your problem — a low appraisal — is more common these days than you might expect. Appraisals are based on the sale prices of similar homes in the recent past. That means in an ascending market (a phase where prices are going up), there might be no recent closed sales at or above the agreed-upon price for your home. This is very likely what’s going on in your situation, given your comment that there are many pending, above-asking comparables (rather than solds).

Mindset Management

Your options are few, but rethink of that as making your decision and action planning easier! We’ll get to the facts and the courses of action available to you in a moment. First, though, understand that the effort to find someone to blame or to ascribe sinister intent or behavior is a counterproductive strategy. Unless you have hard evidence that the buyer did something shady, the much more plausible and commonplace explanation is that the appraiser could not find recently closed transactions to justify the contract price.

It’s very common, in bidding-war situations, for prices to rapidly and significantly escalate above the asking price. That doesn’t mean, however, that the recent sales to support that price are there.

For this reason, many listing agents will advise their seller clients to take only above-asking offers that are (a) within the realm of the price range that can be supported by the comparables for appraisal purposes, or (b) offers with no appraisal contingency, made by buyers with enough cash to make up the difference between the appraised price and the contract price in the event of a low appraisal.

Appraisers are currently under the gun, as a profession, because many pundits assign what they see as a pervasive pattern of inflated appraisals with at least partial blame for the housing crisis.

Because of that, appraisers are very cautious and conservative with their value estimates these days. In addition, the recently enactment of the Home Valuation Code of Conduct (HVCC) has largely removed the possibility of contact between the buyer, buyer’s broker and lender. This envelops the appraiser in a sometimes-good, sometimes-bad cocoon of ignorance about the circumstances that might warrant a higher value, like your home’s multiple offers or the current contract prices of the pending listings in your neighborhood.

Long story short — chances are good that there’s no monkey business, especially if that’s also your agent’s gut feeling. So stop wasting your energy on those conspiracy theories, and spend it, instead, on getting clear on what your priorities are and taking steps to further them.

Do you have to get top dollar to be able to afford to sell? Were any of the other buyers who made offers on your home able to purchase it with cash or willing to make up the difference if the home didn’t appraise at the purchase price? Are any of those buyers still interested in your home? Ask your agent. Without these facts you’re not equipped to make a sound decision.

If there are no other buyers on the scene who are willing to take your home at or near the contract price even with a low appraisal, proceed with caution. It sounds like to me that the contract price was way above what you thought you would get in the first place. Consider whether potentially higher, but hypothetical, "birds in the bush" are risking the one real offer you currently have in hand. …CONTINUED

Need-to-Knows

Under HVCC, if your buyer’s financing is an FHA loan above the conforming loan limit of $417,000 or a conventional loan of any amount, their representatives had little or no input into the selection of appraiser, nor did they have any contact with that appraiser. This makes it difficult or impossible to present a counterproposal to the appraiser, supporting the contract price as the fair market value of your home.

That leaves you with essentially two options in this situation: agree to a price reduction or move on to the next buyer.

In this situation, if you put your place back on the market be aware that the previous buyer’s low appraisal is arguably a material fact that you would need to disclose to the next buyer.

If your buyer’s loan was an FHA-insured loan under the conforming loan limit, their mortgage broker probably was able to select the appraiser.

That means nothing about influence, though. Again, FHA-certified appraisers who want to keep their ability to earn a livelihood by working on FHA loans keep their noses very clean of even the appearance of improper influence by a buyer or broker, in my experience.

While your buyer’s broker might be able to work with you — through your broker or agent — to put a package of support for a higher value together and present it to the appraiser, there are no guarantees that the appraiser will agree with a higher value.

Additionally, if the lower appraisal price sticks in this situation, it might stay in FHA’s records even if this buyer backs out. So your home might be stuck with that value for any buyer who wants to purchase it with an FHA loan.

Action Plan

1. Find out whether it is possible to present the appraiser with documents of your home’s upgrades, your neighborhood’s pending listings’ contract prices, or anything else that might legitimately impact their opinion of your home’s value. If so, do it!

2. If it’s not possible, or if their opinion of value does not change, consider whether reducing the price to the appraised value would actually be the end of your world or just a temporary setback on your path to the vision you had for your life when you put your place on the market.

3. If you are willing to risk the chance that you’ll end up with no buyer at all, put your place back on the market and look for a buyer who has the cash and the willingness to buy it at a higher price, despite the previous buyer’s low appraisal. Depending on your price point, that might not be a bizarre request. Ask your local agent for his or her input and experience before you make your decision.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.

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