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South Seattle Realtor: New Year, New Appraisal Concerns

“Dear South Seattle Realtor” is a new column hosted by a series of hyper-local realtors with deep experience and knowledge of the South Seattle community. Send your questions to gosouthseattle@gmail.com. This month’s answer is provided by Ray Akers with Akers & Cargill Properties. He can be reached at (206) 722-4444 or ray@akerscargill.com.

Dear South Seattle Realtor,

I listed my house for sale, and immediately received five offers. Several of the offers were over the asking price, and I chose the highest offer. The buyer was pre-approved for a mortgage, so I expected a trouble-free sale. Everything was going smoothly until the appraisal. My realtor informed me the appraised value was less than the sale price. I was faced with the choice of paying for a 2nd appraisal –with no guarantee the value would be higher— or reducing the sale price to match the value of the appraisal. I chose to reduce the sale price. I’m very frustrated, and I wonder if other sellers are receiving low appraisals?

Frustrated Seller

Dear C.S.,

I share your frustration. You prepare for weeks (or months) to put your home on the market, painting and fixing, and sprucing up the home. Your efforts are rewarded with multiple offers, and a premium sale price. Then, the appraiser determines your home is not worth the price you’ve negotiated with the buyer.

There’s a saying, ‘misery loves company’, which may be appropriate in this instance. If it’s any consolation to you, a low appraisal is not uncommon.

After you received the low appraisal, you were offered two choices; reduce your sale price or pay for a second appraisal. You had a third choice, and I’ll address that later.

As we begin a new year, Seattle is the hottest real estate market in the nation, according to new data from The S&P Case-Shiller National Home Price Index. Home prices in the Seattle region rose 11 percent between September of 2015 and 2016, inching past Portland which saw 10.9 percent year-over-year growth.

A low supply of listings is contributing to the steep rise in real estate prices.

In an overheated real estate market, prices tend to rise more quickly than the actual market value. An appraiser is faced with the challenge of justifying the sale price of a property in a rising real estate market. To arrive at a value for your home, the appraiser must choose from among comparable sales which are most similar to your home, and which sold in the previous 180-days.

In a rapidly rising market, it’s not uncommon for prior home sales to be 1-5% less than your home. It’s up to the appraiser to determine if the sale price you’ve negotiated is appropriate for the rising real estate market, or if the sale price is the result of one or two overly enthusiastic buyers who’ve bid the price higher than the market value. It can be a very tough decision. It doesn’t help that the appraiser works on the lender’s behalf.

From the lender’s perspective, the goal of the appraisal is to determine the probable price a typical buyer would pay for the property. The fact is, the lender wants to approve your buyer’s loan. Bottom-line, new home loans are major source of revenue for banks.

When the appraised value is below the agreed upon sale price, there are several issues to address. First, the buyer, who is emotionally involved in the purchase of your home, may react in a positive or negative way to the lower value. Some buyers see this as an opportunity to re-negotiate a lower sale price. On the other hand, a buyer who is having second thoughts about your home might use the low appraisal as an excuse to cancel the sale.

Second, the lender is unlikely to approve the mortgage if the sale price is less than the appraised value. This forces the buyer or the seller to make concessions. The lender will want to see a lower sale price, a re-appraisal which justifies the current sale price, or a larger down-payment from the buyer (a 3rd option). You chose to reduce your sale price to match the appraised value. You could also have chosen to hold the line on price, which would have forced the buyer to make or a larger down-payment in order to satisfy the lender. The risk is that the buyer might be unwilling or unable to make a larger down-payment, and that would mean you’d lose the sale and your house would have go back-on-market.

As the seller, you have to decide if you will accept the low appraisal, pay for a 2nd appraisal, or take a hard line with the buyer and risk losing the sale. This is where you’ll appreciate the advice of an experienced realtor.

Tip #1: When interviewing agents, be sure to ask about their strategy for pricing your home, for dealing with multiple offers, and how they’ll deal with a low appraisal.

Tip #2: Intentionally pricing a home too low, to encourage a bidding-war, can backfire if the appraisal doesn’t support the price. Pricing your home correctly for the market is a better strategy.

“Dear South Seattle Realtor” is a new column hosted by a series of hyper-local realtors with deep experience and knowledge of the South Seattle community. Send your questions to gosouthseattle@gmail.com. This month’s answer is provided by Ray Akers with Akers & Cargill Properties. He can be reached at (206) 722-4444 or ray@akerscargill.com.

 

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