When buying a home, mortgage lenders typically require a
property to appraise at or above the purchase price in order to fund a home
loan. This is to ensure that the
collateral, the property, is worth more than the loan amount in the event they
need to foreclose on the property.
With the recent changes to the market and the lending
environment, low appraisals are unfortunately becoming more and more
commonplace. This article will focus on
how to potentially increase an appraisal and what to do if you receive a low
appraisal.
If you are selling, here are some things you can do to
potentially increase the appraised value of your home.
1.
Provide a detailed list of every improvement
that you made to the property while you owned it. Did you replace any appliances? Did you update light fixtures or
hardware? Did you add or replace a
deck? Include the costs of any
improvements. When were the improvements
made? Do you have appropriate building
permits and certificates of occupancy? I
would prepare this list in advance and in writing so that you are sure not to
forget anything while the appraiser is at your home.
2.
Make sure both the interior and exterior of the
home is clean and clutter free. The
appraisal is based, in part, on the condition of the home compared with other
properties in the neighborhood. A clean
and clutter free home is more likely to provide a favorable impression
resulting in a higher appraisal amount.
Likewise, if you can, repair broken items or finish any incomplete
projects before having the house appraised.
3.
Make sure the appraiser has access to the entire
property. If you have outbuildings, make
sure that they can get into the outbuildings.
4.
Gather a list of comparable home sales in your
area. What are similar homes selling
for? If you are utilizing the services
of a real estate agent, your agent can assist you with these efforts.
5.
Have documents such a surveys and house plans
available for the appraiser to review.
You want to be sure the appraiser has the appropriate lot size and
square footage.
So your appraisal comes in too low, now what?
You and your real estate agent should review the appraisal
to see if there are any errors. Errors
might include the wrong square footage, the wrong lot size, and omitting
comparable homes. Is the information for
the comparable homes accurate? Is the
appraiser familiar with the area? If
errors are found, the appraiser may revise his or her report or your lender may
be willing to allow a second appraisal. Please
note that it is rare that an appraisal is successfully challenged.
The parties have several options in dealing with a low
appraisal. Frequently, contracts of sale
provide that the deal may be canceled if the appraisal is too low. Often sellers reduce the purchase price to
the appraised value so that the lender will fund the loan and save the
deal. Another option is that the
purchaser could make up the difference between the purchase price and the
appraised value in cash. This option is
more likely when the appraisal is only a few thousand dollars lower than the
purchase price. The seller and buyer
could also agree to meet in the middle.
The seller reduces the price and the buyer brings more cash to the
table. Lastly, the parties may cancel
the sale if the contract allows.
If you need assistance when buying or selling a home, be sure
to obtain competent legal representation to guide you through the negotiation
process. This article is not intended to
be legal advice and does not establish an attorney client relationship. If you wish to speak with Ms. Cassidy on a
specific legal matter, please contact her at 845-981-7223.
