Are low appraisal values still an issue in today’s market?
Though things in the market have changed this year, we are still seeing homes appraising low in today’s market. Why does that happen?
Oftentimes, the appraiser is an independent third party, but they have to substantiate the valuation of the home using the data that’s there. Typically, they need at least three closed sales to substantiate the value they give. In this low-inventory market, sometimes there aren’t enough sales to match the asking price, so there’s a gap in the appraisal value.
What happens if you’re a buyer and the appraisal value doesn’t come in? In previous markets, you’d be able to negotiate with the seller. Suppose you’re under contract for a $900,000 home, and the appraised value came in at $875,000. You could negotiate with the seller to drop their asking price down to the appraised value if there are no other offers. However, there’s little room for negotiation in this market, and buyers often waive the appraisal contingency at the very beginning. In that case, the buyer would have to make up the $25,000 gap.
How do you prevent a gap? The best way is to maximize the valuation of your home to reduce the friction on the transaction. When we’re under contract with buyers, we look for the relevant closed sales that we want the appraiser to factor into their valuation.
On the selling side, we find everything we can about the home in terms of upgrades and see how that compares to other homes. Appraisers don’t get paid a whole lot to do what they do, so if we make their job easier, they’re more likely to lean on our data. In this way, buyers get excited because they won’t have to fill in a gap, and sellers are excited because they’re getting all the money they need to close the transaction.
If you’d like to chat more about these strategies or have any questions, reach out to us via phone or email. We’d love to help you.