The appraisal value will be dragged down somewhat by the other homes in the area. This is called the appraisal regression theory. As a real estate agent, this can be hard to explain to a seller. For example, in Milford Massachusetts , one of the towns I cover, there are very few high-end sales. When someone is selling a luxury home in this town, it can be tough because there are so few buyers willing to commit.
Today many buyers look at a house as an investment as much as a place to call home. When there are so few upper-end home sales, it is not only a problem for selling but appraising as well. Functional obsolescence is a term not many people are aware of with the exception of appraisers and some very educated real estate agents. Functional obsolescence is when there are features that are not practical or desirable that affect market value. Here are a few examples:.
Obviously, these characteristics are not ideal. It is certainly feasible an appraiser could come in lower than expected on value because of these types of issues. When there are few homes nearby to compare to, the appraiser has no choice but to look further to find similar homes to aid in the appraisal.
Unfortunately, where the appraiser looks, may not be where you would like them to. Not long ago, I had to evaluate a high-end antique in Ashland Massachusetts.
There were no similar comps in the town in the last six months or even going back a year. Given the circumstance, I had to go outside the town to find similar sales. What I did was use some sales in towns that were nearby that had the most similar real estate value scale as Ashland.
Whenever you have to go outside the community, it is far more difficult for an appraiser. It significantly increases the odds of an appraisal coming in low. The comps the appraiser uses may be in an area that is not as pleasant or desirable as where your home is, which can negatively impact the appraisal value.
You may need to point out the problem to the appraiser because good comps need to be as similar to your home as possible — including the quality of the location.
A great view is worth something. There is a possibility that the comps the appraiser is using do not have as nice a view as your home, which could lead to a lower appraisal value. You can let the appraiser know about the view. Of course, there is also the possibility that the value you place on the view is not the same value the appraiser does. Evaluating views and even just the setting is quite common when you are selling a waterfront property.
These homes tend to be more scarce with fewer comps to come up with an accurate value. Some people are not very good at their jobs. Other people are new at their jobs and do not have the experience necessary to do the task as well as it could be done. You may find yourself in a situation where the appraiser you are working with falls into one category or the other. The appraiser may be in the wrong profession, or he or she may have appraised very few homes.
You can do some research to determine if there is a problem with the appraiser, and you can request a different appraiser if necessary. Keep in mind, though, that most of the time a low appraisal is not due to a bad appraiser. Only request a different appraiser if you feel sure that the appraisal is grossly incorrect. Buying a home is an emotional experience.
Buyers can get caught up in finding their dream home and wind up offering more than they should — and more than the home is worth. As a home seller, you may have to come to grips with the fact the buyer is overpaying based on accurate comparable sales data. When this happens, you might have to bite the bullet and accept this fact.
There will be a few choices including having to drop your price. If you are lucky, the buyer may decide the want to participate and put more money down to satisfy the lender. Nobody involved in a real estate transaction wants to get that dreaded call saying that the appraisal has come in low. When this happens the stress level of everyone involved skyrockets. In situations like these cooler heads prevail.
Get together with your real estate agent and create a plan to deal with the situation. About the Author: The above Real Estate information on the reasons why an appraisal comes in low was provided by Bill Gassett, a Nationally recognized leader in his field.
Bill can be reached via email at billgassett remaxexec. Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise! In other words, if the subject property was not available for sale, would a buyer consider purchasing the comparable sale as a replacement? Would a buyer substitute the comparable property if the subject property was not available?
That underscores the reality that not every neighborhood sale is actually a comparable property. This is why you should look at comparable sales data before making an offer on a home. Keep copies of the comps and give them to the appraiser when they arrive at the home. This data will help you determine whether the listing price is realistic. Your real estate agent should be able to do this research for you. But you can also research it yourself by looking at recent sales on Zillow.
If the appraised value comes in lower than the contractual purchase price, the buyer may be able to renegotiate the selling price so that it falls in line with the appraised value of the home. However, if the purchase contract did come with an appraisal contingency, the seller will need to work with the buyer to make things acceptable for all parties. Typically the seller will work with the buyer to come to an agreement, although a huge gap in the appraised value and the purchase price could kill the deal completely.
You will want to carefully evaluate the data and other logistics used for how the appraised value was determined. A good appraisal will have all the data and analysis explained and supported within the appraisal.
A good appraisal should be fully supported, easy to understand, and credible. Not all home appraisals are created equal, and the same is true with appraisers. While they are meant to be objective, they are still influenced by the human creating the report. Another possibility is that the appraiser lacks sufficient skill and experience. Some people are not very good at their jobs. Other people are new at their jobs and do not have the experience necessary to do the task as well as it could be done.
You may find yourself in a situation where the appraiser you are working with falls into one category or the other. The appraiser may be in the wrong profession, or he or she may have appraised very few homes. You can do some research to determine if there is a problem with the appraiser, and you can request a different appraiser if necessary. There are dozens of reasons why home appraisals come in low. Our industry experts outline some reasons why you might encounter a low value below.
Jacobs stresses the importance of verifying that the appraiser gives proper credit to the characteristics of the home, such as the correct square footage, the number of bedrooms, and any updates. Seller tip: Review the appraisal report with your agent to suss out any material inconsistencies. Curt Stinson, a Tucson area real estate agent with 27 years of experience , agrees, citing overpricing as the main reason for an appraisal coming in below the contract price.
If an appraiser is crunched for time, they may fail to find the best comps to compare your home to. If an appraisal comes in erroneously low, it could be due to an appraiser using poor comparable sales data or just not being competent in the market, notes Mason Spurgeon, certified general appraiser and owner of Spurgeon Appraisals.
Seller tip: During your appraisal appointment, have your agent provide the appraiser with a list of recently sold homes in your neighborhood that are similar to yours and support your contract price. Here are a few ways you can move forward with the deal:. Spurgeon has seen this happen in scenarios where the buyer really wants the property or the market is on a quick upward trend and is moving faster than the sales.
If both you and the buyer are motivated to make the deal happen, you may choose to split the difference between the sale price and the appraisal amount. If the buyer included an appraisal contingency in their offer, they can exit the deal with their earnest money intact if the appraisal comes in under the contract price.
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