Outside Appraisal
I found that Sellers often think the price of their home is determined solely by what they’re willing to accept and what the buyer is willing to pay. But this is not always the case. One variable that most sellers don’t consider is the lender appraisal. Nowadays, even when there is no lender involved, good buyer’s agents are writing a contingency in the contract that reads something like this: “the sale of this property is contingent on the property being appraised at or below full purchase price”.
Lenders want to protect the interest of their investors, so they hire a licensed appraiser to give an independent, objective opinion of what the property is worth. Appraisers will look at recently sold homes in a neighborhood and try to find those with similar characteristics. Then they’ll make necessary adjustments to the comparable home for square footage, age of home, pools, upgrades, etc. In May of 2009, the rules changed for lender appraisals. The rules, dubbed the Home Valuation Code of Conduct, are meant to eliminate conflicts of interest that created pressure on real estate appraisers to inflate the value of a property. Lenders, agents and brokers have been known to pressure appraisers to “hit the number” that the homebuyer and seller agreed on so the deal would close and everyone could collect their fees. Inflated appraisals were partly blamed for fueling the housing bubble.
Used to be that a mortgage broker could order the appraisal from a local appraiser. No more. Now the mortgage broker has to rely on the bank that is providing the mortgage. So lending banks started giving more business to appraisal management companies, which critics say draw appraisers from a pool of candidates willing to do the job for less money and who, in some cases, may be unfamiliar with a neighborhood. Many times and these days, more often than not, the value of the property appraisal is coming in lower than the agreed upon purchase price. Remember this when you start to negotiate UP because chances are, you may have to go back down to close the deal.
An article in the New York Times states, “The appraisal process also can cause substantial delays in getting a loan. Sometimes it takes weeks to get an appraiser to visit a property, and more often it takes the appraiser weeks before he can decide its worth.”
My advice to sellers these days is this: IF YOU GET AN OFFER ON YOUR HOME AND IT IS A CASH OFFER, DO EVERYTHING YOU CAN TO MAKE IT WORK FOR YOU.
