Will It Appraise, Part One

“Will it appraise?” This is the question that every buyer must ask themselves these days before they make an offer on a property. Appraisals are becoming more and more of an issue when it comes to buying a home. Why? Well, there are several reasons for this and I’ll detail some, but not all below.

  1. When sellers put their home up for sale many times, they are unwilling to sell it at market value. As such, their idea of the worth of the home and the appraiser’s valuation may not be in sync. With vast drops in property values, we see this situation played out more and more.
  2. We know that organizations like Fannie and Freddie Mac who buy mortgages from lenders have come down hard on appraisers, enforcing new rules and guidelines. This has made a lot of appraisers scared and conservative in their valuations, to say the least.
  3. In conjunction with the new rules and guidelines, a buyer could have an appraiser working on their contract that is not from the area nor are they familiar with the neighborhood. I am not saying that the appraiser will do a poor job, but having an area or neighborhood of expertise certainly helps for fair valuations.

Now that we have documented a few of the problems associated with appraisals, lets take a look at an example of what could go wrong and often does.

A buyer finds a home that they want and the asking price is 200k. They’ve looked at everything, believe the 200K is a good deal for this home, and they make a full-price offer. The seller accepts, the lender orders the appraisal, and it comes in at 185K. In this case, there are three remedies: a) The seller reduces the sale price to 185K and the buyer agrees to continue with the contract. b) The seller won’t or can’t reduce the price to 185K, but the buyer can move forward if they come with an extra 15K cash out of their pocket at closing. c) The buyer can terminate the contract and move on.

While this seems straightforward and academic, you cannot believe how many times we are running into this on a daily basis. A word to the wise: buyers, before you make an offer on a home, get with your agent and really make sure that the home you are making an offer on will appraise at the price you are offering.

Next week we’ll tackle what sellers can do to make sure their property will appraise at the asking price.

Dan Polimino is a Realtor with Fuller Sotheby’s International Realty. He can be reached at DPolimino@fullerproperties.com and www.coloradodreamhouse.com/denverpost

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