Every house on the market has to be sold twice; once to a prospective buyer and then to the bank (through the bank’s appraisal). In a housing market where supply is very low and demand is very high, home values increase rapidly. One major challenge in such a market is the bank appraisal.
This shouldn’t come as a surprise. One major challenge in such a market is the bank appraisal. If prices are jumping, it is difficult for appraisers to find adequate, comparable sales (similar houses in the neighborhood that closed recently) to defend the price when performing the appraisal for the bank.
First American Title issues a quarterly report, the Real Estate Sentiment Index 2016 (RESI), which “measures title agent sentiment on a variety of key market metrics and industry issues”. Their 2016 4t1st Quarter Edition revealed some interesting information regarding possible challenges with appraisal values in 2016.
“The first quarter RESI found that title agents continue to believe that property valuation issues will be the most likely cause of title order cancellation over the coming year.”
But that’s just the tip of the iceberg when it comes to appraisals. Here are some things to keep in mind so you have realistic expectations and responses during an appraisal.
1. The appraiser doesn’t do a neighborhood deep-dive
Appraisers don’t normally officially inspect the comps, (but you didn’t here that from us). They wouldn’t know if there was a mold issue, asbestos, or a nasty divorce that led to a quick below-market sale of a comparable home, skewing the analysis.
2. The appraiser has to go outside the hood
Ideal comps should be similar in style, size, location, and view. Sometimes there isn’t enough data on sales of similar homes in the area, forcing the appraiser to use comps from a nearby, maybe not as nice or desirable as yours, community.
3. The importance of the view
If your house has a great view, better than other houses, make sure the appraiser knows it. Babbling brook always beats out power lines.
4. A gorgeous basement
Even if your basement was finished above and beyond the norm, below ground space has a lower price per square foot.
5. The extras that totally sold you aren’t selling the appraiser
Sadly, $50,000 landscaping and $100,000 landscaping are equal in the eyes of the appraiser. They check a box; yes or no. Done.
6. The condo is the best in the building
Condos and co-ops are driven by square footage, even if your kitchen finishes are top of the line and theirs is builder grade. Stinks doesn’t it?
7. The market is too hot to keep up with
8. You intentionally overpaid
You wanted it and you got it.
9. The appraiser is inexperienced—or just bad
Which doesn’t take the sting out of paying for a second appraisal, but is often worth every penny.
Every house on the market has to be sold twice; once to a prospective buyer and then to the bank (through the bank’s appraisal). With escalating prices, the second sale might be even more difficult than the first. That is why we suggest that you use an experienced real estate professional to help set your listing price.
If you’d like help setting a price for your home so that you can avoid appraisal issues, let us know. We are always happy to help sellers and buyers avoid as many pitfalls as we can. Get in touch with one today.