CAN AN APPRAISAL MAKE OR BREAK A DEAL IN A REAL ESTATE TRANSACTION?

The answer is yes, absolutely!  We are all hearing how it’s a seller’s market, with inventory so low and buyer demand high, has driven home prices up anywhere from 10%-20% based on this same time last year and depending on the town you live in.  Let me clarify “low inventory” – it is not that the sellers are not selling, it is that once the property hits the market, if priced well, it will go under contract very quickly, many times with multiple offers, and back-up offers waiting on the sidelines to see if the sale will fall apart in the hopes of securing the home for themselves.  Having said that, once a buyer and seller negotiate the sales price of a property, and as part of the buyer’s mortgage process, the bank will send out their appraiser to the property to ensure its value to protect the banks interest.   I’ve painted a little picture of our current market because this can impact the appraisal, which in turn can jeopardize the sale.  Given this market, there have been times where the appraiser cannot place the same value of the property that both buyer and seller have settled on, which in many cases has been well over the list price.  I find, some appraisers adjust for the current market, some not so much.  When the appraisal cannot support the agreed upon sales price a few things could happen to remedy this in order for the transaction to move forward.  

First, I would just say, if there is reason to believe that the appraiser has not used the appropriate comparable properties or made proper adjustments to support the market – the Realtor can “challenge” the appraisal in the hopes of getting the value adjusted.  This is not an easy task, but one I have had success in doing when warranted.  

Falling short of that, the most common remedy would be for the seller to lower their sales price to the appraised value so that the buyer would be able to secure their mortgage and continue to move forward with the transaction.

If the buyer was willing to pay more for the property, but was only putting down a small down payment, they would not be approved for the mortgage.  In this case, the seller can lower their sales price if they want to continue to move forward with the transaction.  

If the buyer is willing to pay more than the appraised value (which is not uncommon in this market) and they are putting a higher down-payment on the property, and/or have the additional cash to put down to “make up the difference” the bank would approve the mortgage based upon that additional cash down at closing with a lower mortgage amount financed.   

The third remedy could be that both buyer and seller meet in the middle and split the difference of the appraised value and the agreed upon sales price.  In this case, the seller would lower the sales price to the mid-point, the buyer would bring that additional cash at closing.  

If none of these remedies can be agreed upon by both parties, the sale would be cancelled, and the property would be placed back on the market.  If there are back-up offers in place the sellers Realtor would reach out to the buyer’s agent to see if they buyers are still interested if they have not secured another property.  

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