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On average, about 1 in 10 real estate transactions will have an appraisal that does not meet the home’s market value. That can be a messy situation when you have certain deadlines and contingencies involved. Luckily, there are a few options for buyers and sellers in this situation.
It’s important to know there’s not an exact science for appraisals. You can hire 10 different appraisers and get a 10% to 15% difference in value on either end of the spectrum. The appraisal is only another person’s opinion of your property’s value, anyway.
A buyer will pay true market value for your home. However, a bank can’t lend on whatever a buyer is willing to pay. The bank needs some way to protect itself in the instance a buyer defaults on the loan and can not make the payments. Appraisers are hired mainly to protect the bank.
Here’s an example of an appraisal gone wrong. A few weeks ago, an appraiser valued a property much lower than the actual market value should have been according to the comparable homes in the neighborhood. The appraiser was from Dallas and trying to appraise a property in the Austin area. That doesn’t make any sense, does it?
"True market value is what a buyer is willing to pay."
There were plenty of comps in the neighborhood and he used comps outside the neighborhood. In this case, the buyers had to switch lenders and get a new appraisal done. There are other options if something similar happens to you.
As a buyer, depending on the loan, you can make up the difference, renegotiate with the seller, or terminate the contract. On the seller side, you can’t terminate the contract. However, you can negotiate or drop the purchase price down to the appraised value. You can also decide to proceed with the agreed upon price.
Sometimes we can get the appraiser to correct the report if something is blatantly wrong. Other times, the appraiser won't admit a mistake. I’ve seen an appraiser not include the value of a pool on the property. That’s a lot of money that went unaccounted for. Sometimes, the bank will reject a report that is obviously wrong, but more often than not, they’ll go ahead and accept the appraisal.
There are some things we can do up-front to prevent any appraisal issues, so give us a call if you’re concerned about appraisal issues or if you have any other questions. We would be happy to help you!
