September 2nd, 2008 by Michael Oliver

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As discussed in the previous post, appraisals are not worth much to anyone besides the lender. But if you’re a seller with a buyer under contract and a sale in escrow (not closed yet) and the appraisal come up short, you have a problem. What can you do?

1) You can reduce the price of your property to the appraised value. Problem solved, except for the fact that you just sold your property for less than your buyer was willing to pay.

2) You or your real estate agent (they are helpful many times, regardless of what many people think) can do research and challenge the appraisal. It’s not as hard as it seems, but you must know what you’re doing.

3) You, the seller, can insist that the buyer pay the agreed upon price anyway. Of course, this is the kiss of death for your home sale because no buyer is going to buy a home for over appraisal. It’s like their Get Out of Jail Free card.

Of these options, I believe the second will yield the best results most of the time. During the appraisal process, the appraiser looks at many variables and places values on each. Here’s an example:

Neighborhood Square Footage Value: $125 per sq. ft.
Fireplace: $3500
Finished Garage: $900
Pool: 75% of what it would cost to build today

All of these numbers are usually based upon the overall neighborhood or area. But sometimes your neighborhood or street is nicer than the others in the area. This can make your stats lower than they should be (and vice-versa). Appraisals also don’t take into account more subjective variables such as views, specific location, and other special features.

Lets say you have a 2000 square foot home with a fireplace, finished garage, and a pool that originally cost $25k. An appraiser has estimated your home to be worth $273,150, and you have a buyer under contract for $280,000. With further research, you might realize that your home is smaller than the average home in your neighborhood. The smaller the home, the larger the actual value per square foot. Maybe the appraiser overlooked this detail, and even though the neighborhood average is $125/sf your home should be worth $140/sf. This discovery alone would solve your problem. Or maybe homes with fireplaces in your area sell on average for $4500 vs. the $3500 the appraiser credited you for. That’s another $1k. See, these are things you must go back and research to find out where there is room to increase value. Many times this can easily be done because appraisals are simply sets of numbers and features that can be substituted and added. As always, make sure you have a qualified, experienced real estate agent assisting you. Many times, they will be able to save a sale after a low appraisal or other events that can easily wreck a sale and/or cost you thousands of dollars.