THE BOOGY MAN OF REAL ESTATE DEALS!

There are a number of hurdles that both buyers and sellers face during the process of getting to closing on a home sale. One of the most formidable is the appraisal process. You can be in a situation where several buyers have competed to buy your home, therefore you got full price or a little more (very common right now), or you may have had a very tough negotiation with just one buyer that lasted several days or even weeks. Either way, both buyer and seller still have to face the fact, that in most cases, you still have to get the appraiser to confirm that your agreed price is appropriate and that the bank loaning the money (most sales in the U. S. are financed) is protected in its position. That is the job of an appraiser, who goes out and finds 3 similar homes, near to yours of similar style, which have sold and closed recently. After adjusting for a number of factors, the appraiser comes up with his opinion of value of subject house. The key words here are “sold and closed recently”. That means that the appraiser is always dealing with history. In an appreciating market, like we have had in the 13 county metro, right now, this can be problematic. Because the supply of homes is short, buyer competition for a home increases what they are willing to pay and sellers are always willing to take more money. A recent article by RisMedia estimates that the difference between seller expectations and appraiser opinion is about 1.9%, not in favor of the seller. That article is posted on my website, Mnhomesbydave.com under the Real Estate News tab.  In all FHA and VA transactions the home has to appraise for the purchase price. The same is true for many conventional loans. On a $200,000 sale, that computes to a difference of almost $4000. Which means either the seller comes down that much or the buyer has to come up with more cash or the transaction is cancelled. But, there are some other alternatives, including an appeal of the appraisal. This is another reason consumers should choose their agent wisely. First of all, both agents in a transaction should have warned both the buyer and the seller of this possibility during negotiations. Secondly, a competent listing agent should provide, or at least offer to provide, comparable properties to the appraiser to support the sales price. The appraiser does not have to use them, but at least he or she knows that there is evidence to support the agreed upon price. Agents and loan officers cannot put pressure on appraisers of any kind, any more, but we can present evidence to back up our position. Third, both agents need to be in touch with the loan officer or processor often to push the delivery of the appraisal as early as possible. Fourth, if an appraisal comes in low, it should be thoroughly studied by the agents for errors. I see factual errors in appraisals often. These errors and more supporting evidence should be presented to the appraiser through the mortgage company involved quickly after the appraisal has come in. Your time limit for appeal is short. A little known fact is that an FHA appraisal is recorded with HUD and after the appeal time, it cannot be changed for 6 months. Another fact, is that the underwriter, an employee of the lending institution in most cases, can adjust the appraisal down, if they think it is appropriate. This can also be appealed.   I have had appeals work, not work or partially work, at least narrowing the gap. The important factor for a consumer is that they have chosen a competent, full time, knowledgeable and attentive agent and a loan officer who has the same qualities, otherwise you could get down to closing time and the whole transaction can fall apart. Don’t let this happen to you. Thanks for reading.

David Feerhusen

David Feerhusen

Broker/Realtor, CDPE, GRI, CRB
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