What Happens if my House Doesn’t Appraise for the Full Price?

By
Real Estate Agent with Keller Williams Realty CalBRE #01492138

 

What Happens if my House Doesn’t Appraise for the Full Price?

 

This is a very common question I hear a lot from sellers and buyers too. So here is the situation. The offer comes in for the full price and the seller is happy and accepts it. The escrow company begins their job and the agents get all the disclosures ready for signatures. The home inspection is completed by the buyers and everything is proceeding smoothly. Then the mortgage lender sends the appraiser out…….and this is where things get shaky.

 

How did the seller’s agent come up with the selling price? First the agent went through the subject home and looked at the entire place; inside and out and considered any upgrades, necessary repairs, the entire appearance, the neighborhood and the location. Then the agent looks at all the homes that have sold within a ½ mile radius if possible or out to 1 mile if none closer. If there are several comps, the agent will consider if they are better, less or equal to the subject home. The agent will then look at homes in the same area that are for sale to see what price they are selling for. A home for sale is not always a good comp as it can just be overpriced and not reflective of the true marketable price.  At the listing appointment, your agent will give you this information and a suitable price is arrived at. This will be your asking price.

 

What if my house doesn't appraise for the full priceHow does the appraiser come up with the selling price? Now, the appraiser comes out after the home is in escrow and takes pictures, measures the home and the lot, considers remodeling upgrades and also looks at the neighborhood and the location. Appraisers strongly consider sold comps in the area as well but the entire process is much more scientific. Appraisers go to school to get certified and use software to assist by plugging in numbers and it is a more calculated process. When this process is all done, the appraiser presents a 25-30 page report. This report considers nearby sold homes within the past 3 months, pending sales, and listed homes (actives).

 

Other factors the appraiser considers. They consider what type of loan the buyer is getting. The reason is that each loan has its own requirements for approving and funding the loan. A Conventional loan tends to get approved with few repairs or none. FHA and VA loans have stricter regulations so there are typically some repairs required.

 

What if my house doesn't appraise for the full priceSo let us consider that the price comes in less. There are 3-4 options here: 1) Reduce the selling price to the appraised price 2) Appeal the appraisal 3) Cancel the contract.

 

The first option is the easiest one; reduce the selling price to the appraised price and proceed and close the contract. But the seller may not be willing to do this and if this is the case, option 2 or 3 can apply.

 

The second option is that the appraisal can be appealed but you must have strong facts, sometimes there is a $150 fee and it has to be paid up front, and no one can be sure the appraiser will change their price after reviewing the facts. I have known of at least 10 appeals and only once did the appraiser agree to change the price.

 

Third option is for the seller to cancel the contract and either hope for a new buyer or will decide not to sell and remove the home off the market. This is where it becomes complicated. If the appraisal was for a FHA loan, this appraised price will stand for 6 months. So if the seller is hoping for a new buyer, it will have to be a Conventional loan only to get his/her full price.

 

There is a fourth option here sometimes! All monies have to go through escrow so there is no passing money behind the scenes from buyer to seller. But if the buyer really wants the home and the seller will not budge, then sometimes the bank will allow the buyer to pay the extra money to the seller through the escrow company. This has to be approved by the Under Writer who has the final say on approving the loan.

 What if my house doesn't appraise for the full price

 

Things to do:

 

1.    Make sure the home looks as nice as possible when the appraiser comes.

 

2.   Prepare a list of any remodeling done, any upgrades and newly purchased appliances. This list can be given to the appraiser by your agent at the time of the appointment.

 

3.   Be sure you have taken care of all repairs necessary and laws can vary from state to state but in California you must:  A) Have your water heater double strapped.   B) Have smoke detectors in all bedrooms, top of stairs, and downstairs too.  3) Carbon Monoxide detectors are now required; 1 upstairs and 1 downstairs.  (Appraisers are looking for these items as they are mandatory so make it easy on yourself and do it prior to inspection)

4.  Make sure your perception of your home is accurate. Sometimes a seller thinks they are right about the list price and the Realtor is wrong. Then when the offers and the appraisal come in low, only then the seller understands they were seeing an inflated price.

 

 What if my house doesn't appraise for the full price

 

Summary: Your Realtor is there to assist you through this entire process and can explain in detail what to do and what is occurring. Most of these situations are resolvable and many appraise at full price.

 

*I had 4 appraisals done in the last four months and two appraised for full price and the other two each came in at $5,000 less than contract price. The reason given for both was the location of the home and this is something we can’t change. Sometimes the appraiser considers factors that we did not and therefore must go along with the report. Usually the seller will agree to change to the reduced price.

 

 

 

This is usually a stressful time and takes 3-5 days for the report. Let your Realtor do the worrying for you and this is when you should start packing.

 

I sell real estate in Riverside and San Bernardino Counties; Redlands, Loma Linda, Highland, Colton, Yucaipa, San Bernardino and other cites too. If you are looking for a professional and experienced agent, I am just a click away. Google me at Kristin Hamilton-Real Estate Agent. Homeowners and Buyers both will find my services top notch and successful. Call me to sell your home.

 

I am waiting for your call! 909-557-6966.

 

This post was authored and or picture was taken by Kristin Hamilton. ©2012, All Rights Reserved, This content may not be reproduced or reprinted (Except for ActiveRain Re-blogging) without express written permission of Kristin Hamilton, Keller Williams Realty, Redlands, CA.

 

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Charles Stallions 01/04/2013 10:06 PM
  2. Joy Daniels 02/03/2013 06:09 PM
Topic:
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Location:
California San Bernardino County Loma Linda
Groups:
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Tags:
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Rainmaker
1,100,642
Michael Jacobs
Coldwell Banker Residential Brokerage - Pasadena, CA
PasadenaCA Real Estate Representation 818.516.4393

Hi Kristen -- this is a great topic to discuss at the time of the listing meeting --- sellers need to be able to establish a listing price that is realistic enough yet to get agents to show the home, buyers to make an offer and to agree to a purchase price that the lender and appraiser will affirm.   

May 29, 2012 08:24 AM #47
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Kristin Hamilton
Keller Williams Realty - Redlands, CA
(909) 557-6966, CDPE, SFR, CHS-Redlands/Loma Linda

Hi Michael,

I totally agree but sometime sellers just have a figure stuck in their head so they want to start out with that price. We always think they will listen to us and come down shortly but once in a great while we find out 6 months later we have wasted everyone's time as the seller is just not capable of lowering their price and now it is off the market. They are the real losers as they could have moved on 38 days after they listed it if they really wanted to sell....but maybe not.

May 29, 2012 08:47 AM #48
Rainmaker
730,492
Juli Vosmik
Dominion Real Estate Partners, LLC, Scottsdale, AZ - Scottsdale, AZ
Scottsdale/Cave Creek, AZ real estate 480-710-0739

Kristin - good blog.  The appraisal is a very important part of the process and if both the listing agent and the buyers agent have prepared a good CMA, there typically shouldn't be a problem.  In an increasing market, it's much more difficult on the appraisers as they rely on CLOSED sales.

May 29, 2012 09:02 AM #49
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Kristin Hamilton
Keller Williams Realty - Redlands, CA
(909) 557-6966, CDPE, SFR, CHS-Redlands/Loma Linda

Hi Juli,

I agree with you totally. I am pretty good at pricing homes as I do REO's and BPO's but sometimes you will just get a weird price back and say where did that come from? And if the appraiser is not from the area sometimes they pick comps that are definitely not in the same area of the city. Usually the comps are correct though.

May 29, 2012 09:11 AM #50
Rainmaker
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Phil Leng
Keller Williams Eastside Market Center - Kirkland, WA
Phil Leng Team - Residential Real Estate Experts &

Hi Kristin,

This is a very thorough and measured description of the appraisal and valuation process.

Thanks

Phil

May 30, 2012 04:26 AM #51
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Kristin Hamilton
Keller Williams Realty - Redlands, CA
(909) 557-6966, CDPE, SFR, CHS-Redlands/Loma Linda

Hi Phil,

Thanks so much for the nice compiment. I hope it helps buyers, sellers, and agents. Have a great week.

May 30, 2012 07:06 AM #52
Rainmaker
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Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

Kristin,

Congratulations on your feature! Sorry I am late for your appraisal post party :)

You did a great job explaining the appraisal process.

Jun 02, 2012 06:07 PM #53
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Kristin Hamilton
Keller Williams Realty - Redlands, CA
(909) 557-6966, CDPE, SFR, CHS-Redlands/Loma Linda

Hi Patty,

 I am so excited about the Featured Post. I have done some that I got over 80-100 comments but never featured so I just gave up. So what a nice gift to get a Feature.....I think they like real estate and computer stuff. I prefer taking nature pictures so I try to do 1/2 and 1/2.

Thanks so much for stopping my friend. Have a great weekend.

Jun 02, 2012 06:56 PM #54
Rainer
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Dave Sullivan
www.TheCreditGuy.TV - Birmingham, MI
The Real Story on Your Credit Score - TheCreditGuy

Excellent information I will forward it if that is ok? thank you!!!

Nov 21, 2012 12:57 PM #55
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Kristin Hamilton
Keller Williams Realty - Redlands, CA
(909) 557-6966, CDPE, SFR, CHS-Redlands/Loma Linda

Hi David,

 Yes, thanks for stopping by and you can forward the info. Happy Holidays!

Nov 21, 2012 02:34 PM #56
Anonymous
Anonymous

Kristin thank you for this information.  Much needed.  And you do it so well.  Bookmarked.  Happy New Year.

Dec 31, 2012 09:01 AM #57
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Kristin Hamilton
Keller Williams Realty - Redlands, CA
(909) 557-6966, CDPE, SFR, CHS-Redlands/Loma Linda

Hi Rosemary,

Happy New Year to you and your family. Best of luck in your business in 2013.

Dec 31, 2012 10:35 AM #58
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Praful Thakkar
Keller Williams Realty - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Kristin, very detailed analysis of what could happen if the house does not appraise that offer price - and wasn't aware of thirt option regarding FHA appraisal - thanks for sharing.

Jan 04, 2013 10:14 PM #59
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Kristin Hamilton
Keller Williams Realty - Redlands, CA
(909) 557-6966, CDPE, SFR, CHS-Redlands/Loma Linda
Hi Praful, Thanks for stopping by and commenting. Yes it is good to know the third option as I have had clients in this boat, Sometimes we do't resolve but 95% of the time we do.
Jan 04, 2013 10:32 PM #60
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Michelle Carr-Crowe-Selling Silicon Valley Homes in Top Schools San Jose, Cupertino, Saratoga, Palo Alto-Just Call 408-252-8900
Just Call (408) 252-8900! - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years


We are seeing this in Silicon Valley and most times the solution is for the buyer to pay the difference as in today's competitive market of multiple offers over asking price, sellers typically have a similar back-up offer.

Jan 04, 2013 10:55 PM #61
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Kristin Hamilton
Keller Williams Realty - Redlands, CA
(909) 557-6966, CDPE, SFR, CHS-Redlands/Loma Linda
I am glad the Silicon Valley is doing well. Usually there is a way to work out a low appraisal.
Jan 04, 2013 11:19 PM #62
Rainmaker
741,588
Sharon Parisi
Keller Williams Dallas Premier Realty - Dallas, TX
Dallas Homes

Kristin, this is one of the best explanations of the appraisal process  that I have seen.  I had a listings last year that did not appraise for the contract price.  Even though, we discussed the the fact that appraisals can come in under the contract price prior to listing, it was painful for the Sellers when it happened to their house.  The contract price,  in this case, was 100% of the asking price. I must add, that this was frustrating for the Buyers as well.

Feb 03, 2013 07:03 PM #63
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Kristin Hamilton
Keller Williams Realty - Redlands, CA
(909) 557-6966, CDPE, SFR, CHS-Redlands/Loma Linda

Hi Sharon,

Thanks so much for the nice comments. I worked hard on this article and it came from the heart as I had a house that had just fallen $5,000 below asking and the seller cancelled escrow. He owned it outright and said it was just the principal of the thing. Very upsetting for all so I was trying to write something that parties would understand as well. It is a difficult process and the waiting at the end is so stressful for all. I wish they would appraise it earlier in the 30 day period.

Feb 03, 2013 09:26 PM #64
Rainmaker
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Helen & Larry Prier- Anacortes Properties, LLC- Residential Real Estate
Anacortes Properties,LLC- Residential Real Estate Sales- 360-708-4888 - Anacortes, WA
in Anacortes & nearby communities & Islands

Kristin, Just wanted you to know that I featured the post in my Favorite Posts for the week. great job

Jun 17, 2013 08:24 AM #65
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Kristin Hamilton
Keller Williams Realty - Redlands, CA
(909) 557-6966, CDPE, SFR, CHS-Redlands/Loma Linda

Hi Helen and Larry,

Thanks so much for the great compliment of being selected as one of your favorites for the week. Have a spectacular week.

Jun 17, 2013 08:27 AM #66
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