Protecting Yourself against Low Appraisal

One phenomenon that is afflicting a sizeable number of buyers and sellers in the real estate market these days is that of a low appraisal. Low appraisal has turned out to be a deal breaker in many instances. Buyers do not want to pay more than the appraisal value whereas sellers find themselves unable to accept a price much lower than their asking price. Let us understand this with an example.

Neither buyer nor seller likes low appraisal

Suppose there is a homeowner asking $430000 for his home but the interested buyer says he cannot pay more than $375000. They both finally agree at a midway price which is $400000. Even before the deal is closed, the bank gets the appraiser’s report that values the home at $350000. This comes as a huge shock for the seller as he has already lowered the asking price from $430000 to $400000. On the other hand, the buyer thinks that this is the real value of the house and he should pay no more than $350000 to the owner. The deal falls and the buyer has to forego the fee of the appraiser. This is a natural outcome of a low appraisal as neither of the two parties is willing to cough up the shortfall of $50000 as the lender will not give mortgage loan on more than the value declared by the appraiser.

Why is the phenomenon of low appraisal on the rise these days?

In recent years, incidents of low appraisal have increased significantly. There are increasing numbers of contracts getting canceled these days and low appraisal plays a big role in them. It does not indicate a tendency by homeowners to set their asking price higher than what their home is actually worth. It also does not mean that the prices of homes are actually as low as suggested by the report of the appraiser. The fault lies somewhere in between.

It is a direct result of a housing market that is declining and there is a dearth of data for the appraiser to get down to the value of the structure. The appraiser does not get comparable are home sales figures. These are called comps and the estimate of the appraiser in the absence of these comps is often not correct. The comps that are available seem to age pretty quickly when home sales figures go down.  An appraiser can easily underprice a house because of low comps and confusing figures of short sales and foreclosures.

HVCC forbids lenders to communicate directly with appraisers

There is one more reason for these low appraisals. Authorities introduced Home Valuation Code of Conduct last May. This code, called HVCC, prohibits lenders from being in direct touch with the appraisers. This has forced lenders to work through Appraisal Management Companies. These companies have on their payrolls many appraisers. You never know if the appraiser sent by this AMC is experienced enough or not in residential appraisals. Many times, appraisers have little knowledge or familiarity with the geographical area where they are going to evaluate a house.

Appraisers’’ competency is going down

A case where the deal gets broken because of low appraisal badly hampers the ability of the property to sell in future as every interested buyer takes a look at this file. An expert says low appraisals are a result of inferior quality appraisers getting into the industry. Appraisers are paid their fee by the AMC and the AMC gets the money from the bank. Both AMC and lender want a bigger slice for themselves rather than paying out to the appraiser. This has obviously resulted in lowering the competency of the appraisers.

While a low appraisal is obviously more harmful for sellers, it can also be damaging for the buyer. Here is how you can protect yourself if you are a buyer or a seller:

For sellers

• Get appraisal before putting your home on the market
• Get an appraiser who you think is experienced enough
• Give a copy of appraisal to the appraiser of the buyer
• You can ask for a reappraisal saying the appraiser overlooked some renovations or features in your property

For buyers

• Ask your lender to send an appraiser form the county where the house is situated. You are well within your right when demanding a local appraiser. After all, the fee of the appraiser comes from your pocket.
• Ask lender to send an appraiser who is a specialist of residential properties
• Meet the appraiser as there is no restriction upon you in this regard. Tell him about short sales and foreclosures in your area that have taken place recently. Don’t worry. He will not get offended but appreciate the fact that you shared this info with him.

Well amigos, this is how you can avoid a low appraisal for your property if you are a seller and also if you are a buyer. We want to make sure that you get good relevant information so that you can get the most out of your Santa Fe Real Estate.