Appraisal Issues

The New York Times had an excellent article today about appraisal issues.  Real estate appraisals are more often a challenge in today’s market.  We’ve been experiencing it here in the Cambridge area but it’s happening all over the country according to the New York Times.

One thing I learned over the last few years is that appraisals aren’t an issue in a declining market – it was easy for a property to appraise when properties were selling for less than they had in the months before.  Values may have been going down but appraisals were easy.

In an appreciating market appraisals are more apt to cause problems.  Prices are going up so past sales may not support the prices buyers are willing to pay in the current market.  Additionally, in areas without a lot of inventory it may be difficult to find enough comparable sales.  Lack of inventory is often one reason why a property will sell for more than it might have in the past – buyers have been waiting for that property type to come on the market and are prepared to pay more to secure it.

New lending regulations for appraisals have also caused challenges.  In the past local appraisers did the lions share of appraisals in the market. They knew the housing stock, they were more likely to have actually seen inside the properties they used as comparable sales, they understood the sublteties of neighborhood values and features buyers in this area were likely to appreciate, etc.  A parking space for example may not have the same value in the suburbs as it does in the city.

As the New York Times reporter described, new regulations mean that many more appraisals are being done by out of town appraisers.  My heart sunk recently when an appraiser pulled up in a car with Connecticut plates. That appraisal turned out ok but other times appraisers’ lack of familiarity with the area has caused problems. 

The New York Times article also pointed out the value of cash sales in the appraisal process.  Those sales will become the “comps” for the next appraiser and happily we’ve had many of them this year.

 If your buyer is getting financing what can you do as a seller to ensure that your property appraises? 

Make sure that your real estate agent is prepared for the appraisal.  Your agent should bring printouts of comparable sales to the appraisal.  I’ll highlight features on the sheets I want to call to the appraiser’s attention and make notations about similarities or differences – “only one bath,” “not a fancy renovation,” etc.  Sometimes it can be tricky to get the right “comps”.   When the comparable sales aren’t easy to come by I will make sure I bring sales sheets for similar properties that have sold nearby but over the line in an abutting town.  I’m pulling together the comps that tell the story – that explain why a buyer would be willing to pay this price for this particular property.

On your end you’ll want to make sure that your property shows at its best.  The appraiser is the final person that you need to impress during the sale of your home.  Make sure your property sparkles, that it’s clean and picked up with lights on.

If you’re a buyer and the appraisal came in low what can you do?  You may be able to renegotiate price with the seller.  If not, you may have to put down more money since the bank is only going to lend X% of the value they’ve assigned to the property.  You may be able to withdraw from the purchase if you’re unable to get your financing but that’s something to discuss with your lender and attorney.

Categories: Buyer Info, Seller Info
Tags: Mortgages

This entry was posted on Saturday, October 13th, 2012 at 10:24 pm and is filed under Buyer Info, Seller Info. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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