December 17th, 2009 by Michael Oliver

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I have recently had a few appraisals come in low on both the sell and buy side and I’m sure I am not alone in saying that appraisals are very biased and hard to understand animal of the real estate transaction. To make a simple point two different appraisers can appraise the same property at the exact same time and come up with a completely different value. So what do you do as a buyer or seller in this situation?

As a buyer a low appraisal while uncomfortable since it may make you second guess your purchase is generally a good thing. Depending upon the circumstances at worst you will be able to cancel your home purchase and find another home since generally there is a “Appraisal Contingency” written into most real estate purchase contracts. If the seller has equity in the property then generally what has to happen is one of two things the seller needs to drop the purchase price to the appraised value or the as the buyer if you want to buy the home you will need to bring the difference in appraised value and purchase price in cash at closing. Since very few buyers are going to be willing to bring the difference in cash at closing the buyers best chance is to request the seller drop the price to accommodate the appraisal price. This is much, much easier said then done it takes a skilled Realtor in most situations to explain to a seller they need to accept “x” amount less for their home purchase then they sold the home for due to an appraisal.

What happens if you are a seller and the buyer’s appraisal comes in low? Well in this situation again most buyers will not be paying more then appraised value for the home. This leaves you as the seller in a tough spot and here are your options; 1)Sell the home to another buyer and hope the appraisal in that transaction comes out higher (could come in even lower due to market conditions/ appraisers personal bias.).2) Drop the price to the appraised value.3) The last option meet somewhere in between, sometimes as a seller you can get rid of the other parts of the sale to make up for the difference. An example of this would be that the buyer’s home appraisal comes in $5,000 low yet as the seller you were contributing $5,000 in closing costs to the buyer, well in that case maybe the buyer can come up with their own closing costs and you lower your sale price by $5,000 thus keeping your sale alive and netting you basically the same amount of money. It really just depends on how the sale was set up from the beginning and what the market conditions are for real estate in your neighborhood. An excellent Realtor is literally worth their weight in gold in this situation because looking at market conditions and what the probable results will be running the different scenarios can save you as the seller tens of thousands of dollars (if not more) as well as tremendous frustration with the home selling process. If you have questions about this email me your question(s) using the form box on the left hand side of this blog. If you have a comment feel free to leave it below this post.

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