Before I start this conversation, let’s define what an appraisal is. An appraisal is a “personal” opinion of value, which means that the market value of your home is subjective to the person executing the appraisal. With this said, if we send three different appraisers to evaluate your home, we may have three different values.
Banks order appraisals because they need to know the market value of the home they are lending money on. A bank will not lend more than the appraised value. Appraisers work for banks, it is not their job to make a transaction go through, their job is to give an objective opinion of value based on the comparable sales in the neighborhood.
Some homeowners have an appraisal done before they put their home on the market to make sure they price the home correctly. It is a good practice, but it doesn’t guaranty that the appraiser for the bank is going to evaluate the home at the same price.
The sale and purchase contract in Florida, already includes that the transaction is contingent to the home appraising at the purchase price. If the home does not appraise, the buyer can cancel the transaction and receive his deposit money back. Some real estate agents even include an addendum for Appraisal Contingency. This is just to make sure their client is protected in case there is a problem with the appraisal.
Some homeowners become very angry to the appraiser when the appraisal comes low. They say that the appraiser stayed in the house for just a few minutes, that he did not include the value of all the extras in their home, that he used the lower sales in the neighborhood, etc. I called a prospect one time and he was trying to sale his home himself. He received an offer for full price and when the appraisal came, the value was lower than asking price. This man told me that he would shoot the appraiser is he run into him, he was so angry about the result of the appraisal but he did not want to lower his price for his buyer to buy his home. To be honest, I erased his name from my database, I don’t want to deal with this type of sellers.
If your home doesn’t appraise at asking price, you have two options:
- Lower your price to appraised value.
- Ask your buyer to bring out of pocket the difference between asking price and appraised value.
Most sellers decide to lower their price but I have seen sellers taking the second option. Years ago, I am talking around the year 2003, I was living in California. The real estate market was insane there, home values were going up by the week. I was working as a real estate appraiser and at that time if a buyer wanted to buy a home and the house did not appraise, the buyer had to come up with the difference. I have not seen that happening today, the market is good but not insane and as I mentioned before, most sellers will lower their price if they want to close the sale of their home.
If you price your home correctly, you may not have to worry about receiving a low appraised value. I have emphasized this in so many of my articles, price your home correctly and your home will sell quickly with the least amount of problems during the transaction.