Hi, I’m Warren Oberholser. I’m a realtor in the East Bay Tri-Valley area in Northern California. My goal is to help both buyers and sellers get maximum results for one of their biggest investments, their home.
Congratulations, your property is now pending. Is the buyer financing? We may have a little problem, but don’t worry, I’ve got plenty of answers.
This hot Tri-Valley seller’s market. This situation can create an issue or a problem for both seller and buyer.
When a lender’s appraiser visits your home, he or she will gather all the information needed to compare it to other homes that have recently sold to determine its value. This method is known by several names, most commonly the sales comparison approach or market data approach. For this method to produce reliable results, however, the market must be active with enough recent sales as used as comparables.
When a market is overactive with home prices rising rapidly, such as the market we’re experiencing right now. When a home sells, prices may rise between that sale and the time your home hits the market. This can be an issue for the appraiser.
This is because there’s no comparable sale for the appraiser to use. So when this happens, the appraiser assesses your home’s value on the pre-price rise sales. Why? Because value is based on what is most recently sold.
According to the experts at JVMLending.com, the strongest indicators of current value are those comps that have closed within the past 90 days.
Now they also state that pending sales and listings are only used in an appraiser’s report to show what the current market is doing. Appraisers do not consider these comps in their final opinion of value. Here’s a common scenario. Mr. and Mrs. Seller lists their Tri-Valley home in a desirable school district. There’s immediate buyer interest in your home, and offers begin rolling in. A bidding war ensues. With anxious buyers offering more than the list price in attempt to win this beautiful home. Mr. and Mrs. Seller were naturally thrilled until the appraisal results came in, and the home didn’t appraise for the amount their home is currently in contract for.
In an interview with Mark Johnson, President of LRES Corporation, He tells HousingWire.com’s Alex Roha., when historical data lags the market’s reality, agreed-upon prices and appraised value often don’t match. According to the National Association of Realtors, more than one-fourth of offer prices are higher than the appraised value. So what’s the solution? Well, to mitigate this challenge that we’re experiencing in the Tri-Valley area with this red hot market, is to get organized before the appraisal. Take stock of all upgrades and improvements you’ve made to your home. Create an itemized list of them, the dates they’re performed, and by whom, and include all the copies of invoices.
Also, include any permits you pulled for repairs. Put all these items into a file folder and make them available for the appraiser. If it’s easier, you may scan the documents into a PDF format so your listing agent can email them to the appraiser. If it’s warranted, include in your package a short narrative of why a nearby home may have sold for less than what it should have. For instance, if Mary down the street had to quickly get to a new city to take a job, and she was willing to take a loss on the sale of her home, the appraiser should know this information. Now, why are you doing this? Alex Rojas from housingwire.com claims that all appraisal experts were in agreement that a lack of communication is a breaking point for expectations of what the home is worth in collateral. He goes on to state that according to Joni Pilgrim, CEO of Nationwide Appraisal network, 99% of the time, there are zero details about the subject property prior to the appraisal. So don’t leave the details of discovery on your home to chance. Make sure your appraiser has all the information about the positive improvements you’ve done to your home. Okay, what happens if you do all this and your property still doesn’t appraise. There are a few items the real estate agent and the loan agent can do. For this video, I’m just going to talk about the buyer’s purchase agreement that has an appraisal contingency in place. If the appraisal comes in for less value than the contract price, the buyer has the option to cancel the contract without forfeiting their deposit.
Number One: Challenge the appraisal
Do you agree with the comps the appraiser used if not, you may challenge the appraisal by providing comps that were not included in the appraisal report. Now I want to point out communication with an appraiser is a bit dicey. The reason is the appraiser is an independent third-party contractor who must be non-partial to the buyer. The appraiser’s opinion is crucial to the buyer’s lender and the lender’s underwriter and must not be influenced or intimidated when challenged by either buyer or seller. If the appraiser is open to receiving new information, great. However, in most cases, once the appraisal report has been submitted to the lender, there is not much chance of changing it.
Number two: Order another appraisal
If you don’t agree with the appraisal report and challenge isn’t an option, then you may just want to order another appraisal. The buyer’s loan agent will be the one to advise on this. Keep in mind each appraisal report costs the buyer money. The average appraisal report can range from 400 to $600, and additional costs will be added if a rush is put on it.
Number Three: Use a different lender or bank
Each lender’s underwriter have different guidelines and rules they use to assess property value. So the buyer’s loan agent may advise on using a different loan product.
Number Four: Buyer and seller may choose to renegotiate the terms of the contract so the appraised price will work
Now there’s several ways to do this. It’s important to understand if a seller feels the buyer has done everything they can to make their offer work, then they may be open to renegotiating to make the contract work.
I hope you enjoyed this article. Please let me know if you have any questions. Warren
Hello…I work with both buyers and sellers in the Tri-Valley area of Northern California. The Tri-Valley is comprised of 6 cities: Pleasanton, Livermore, Dublin, San Ramon, Danville, and Alamo. To better understand what each city has to offer, I have created a Pros and Cons video and BLOG for each – (Pros & Cons for Pleasanton, Pros & Cons for Livermore, Pros & Cons for Dublin, Pros & Cons for San Ramon, Pros & Cons for Danville and Pros & Cons for Alamo). If you are thinking about purchasing or selling a home, please reach out to me by text, phone, or email. If it is convenient, I can schedule a Zoom chat so we can discuss your home goals. Wishing you all the best on your home journey. Cheers!
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