I have been in this situation and went back to listing agent show me where did they comp property for X value. They can't produce the documents required.
Therefore I write into sales offer seller will reduce the price of home match appraised value OR refund buyers money back on appraisal.
National Featured Realtor and Consultant, Texas Mortgage Loan Officer, Credit Repair Lecturer
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However, you can minimize your risks.
You should have a buyer's agent representing you. Ask the agent to run a CMA on the home before you make an offer on it. That will give you a pretty good idea of what the home is worth. And, significantly, the CMA probably will include the same homes that an appraiser will use when doing the appraisal. So, let's say it's in a "cookie cutter" neighborhood. Your agent comes up with good comps--same neighborhood, sales in the last six months, same or similar style house about the same size--of $400,000, $410,000, and $420,000. So, first, it's likely the home you're considering is worth roughly $410,000. More to the point, if they're good comps, the appraiser will be looking at the same sales and should come to the same conclusion.
Now, it's not always as clear-cut as that. But that's the first step.
On unique homes (historic homes, some homes out in the country), it's far more difficult to come up with comps. I've heard of agents (and investors) preparing a list of comps and presenting them to the appraiser to help justify the value, and to give the appraiser some idea of what the buyer or investor looked at regarding comps. Now, the appraiser is absolutely free to choose other properties and he/she should exercise best judgment in the matter. Still, it doesn't hurt for an agent or investor to present information which supports the contract price.
Sometimes, as you noted, when an appraisal comes in low, the seller will reduce the price. Maybe to the appraisal, maybe not. And sometimes they might not reduce the price at all. That's a risk. However, my experience has been that usually there's some flexibility on the part of the seller.
So, to summarize: Get a current CMA. If there's any concern about finding comps, provide a list of comps to the appraiser. And if the appraisal comes in low, work with the seller to try to persuade him/her to be flexible on price. (A quick argument or two: "Look, Mr. Seller. You're asking $400,000. The appraisal came in at $350,000. Another appraisal is just as likely to come in at $350,000, which means you're just not going to get $400,000 in today's market. However, right now you do have a willing buyer. If you won't come down on price, it may be months before you get another buyer. And when you do, you'll still probably get an appraisal at $350,000. So you won't have gained anything by waiting. If you're interested in selling, let's revisit the price so that you can sell now and get on with your life."
Hope that helps.
Unfortunately, lending practices have changed in the past year and the new HVCC (Home Valuation Code of Conduct) rules, which were only "half" implemented this past year, have changed how appraisers must value homes for FNMA and FHLMC (Fannie Mae and Freddie Mac, respectively) backed loans. In the past, we--Realtors--could select an appraiser who was familiar with the neighborhood and the specifics of the home market in a certain geographic location, which made for a more accurate appraisal. Now, however, under the HVCC, only the lender may request an appraisal and often the appraiser called to do the work does not live anywhere near the job location. Also, the amount of money paid to the appraiser has dropped almost in half, so many of our best appraisers are leaving the field because they can no longer make enough money to support themselves. This, coupled with the fact that appraisals must now show a "trend" to the value (meaning the appraiser must provide the lender with a suggestion of where the housing prices are headed) has skewed home values in many areas.
The best thing that any home buyer can do is to work with a knowledgeable Realtor to obtain the local pricing and to come up with a price that is comparable for the home. When a purchase contract is written for a specific amount, requesting a change in pricing due to a lower appraisal is actually the same as requesting a counter-offer, and under contract laws in most states, that provides the seller with the option of cancelling the contract. Although there may be some wording that you can put into an offer that requires the seller to accept a lower price if the home appraises for less, in a market with mutliple buyers, that condition can make the difference between your being selected as the buyer or not. Again, working with an agent who is knowledgeable in your specific area will help greatly in avoiding over pricing or in negotiating a lower price, if necessary.
Grace Morioka, SRES, e-Pro
Area Pro Realty
San Jose, CA
You are not alone in this situation...it is becoming more and more common in the current market we are in.
If you are working with an experienced real estate agent they should be able to guide you through this process by referring to the comparison information obtained from recently sold similar property. Essentially an appraiser would likely use the same information to determine their appraisal amount.
However, there are no guarantee with this process and there will always be some risk involved that can be minimized by using a skilled RE agent.
The Eckler Team
However, with the new appraiser selection system in play, it is possible that the person appraising the property is not even from your area. This was supposed to HELP the consumer....but it has only hurt. (Ask your Realtor about HVCC.)