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My wife and I are first time buyers and have saved $80,000 for our down payment. Each of our parents is helping us with the remainder. Out of five offers, our $985,000 bid was the highest. We hired an inspector and everything seemed fine, until the bank’s appraiser decided our home was only worth $950,000. The seller told us every offer they received was higher than the appraiser’s estimate so they won’t drop their price. We now have to increase our 20% down payment by $7,000 to make up the difference. It doesn’t make sense that the appraiser can appraise the home lower than all of the offers the seller received.
A little background: Lenders will lend based on the lower of the appraised value or the purchase price. In your scenario your lender will make you an 80% loan based on the $950,000 appraised value. There are so many reasons why an appraisal might come in low.
First things first, as a real estate agent I have learned it’s much easier to be proactive.
When I represent the seller I email comparable listings and sales with notes indicating any reason why they are inferior to my client’s home. Perhaps, the kitchen and bathrooms are less updated, the square footage is smaller or the location not as desirable. As the appraiser has not been inside these other homes, this information is helpful. It’s often prudent for the seller or listing agent to prepare a list of improvements which the appraiser may be unaware of such as copper plumbing, new air conditioning, etc.
An appraisal is simply the appraiser’s opinion on what the property value is based on comparable sales in the neighborhood. The Dodd-Frank Wall Street Reform and Consumer Protection Act was supposed to give us more reliable appraisals. But what resulted was the influx of management company middle men, who take about ½ of the appraiser’s fee, and a barrage of out of area appraisers. I have had appraisers from Orange County want to drive up and appraise our local homes. Each community has its own boundaries, in some you want to be North of the main artery in others South, East or West.
You might ask your Realtor® to review the appraisal for any glaring discrepancies. I have sometimes seen appraiser’s fail to make adjustments for proximity to freeways, high tension lines, etc. In this instance you can ask the Management Company to request that the appraiser make corrections. Sometimes this will result in a changed value.