What steps can you take if your property does not appraise for the contract price?
Congratulations on the contract for your home! Everyone is excited about the next steps of the purchase process. The inspections are just the beginning of the journey to a closing. There is also another step called the appraisal.
The financial company, who will be issuing the mortgage, has a vest interested in the value of the property. They want assurances the market value of the property meets or exceeds the contract price. To ensure the value is there, the mortgage company may require an appraisal of the property by a licensed appraiser.
Who is the Appraiser?
The appraiser’s role is to visit the property and gather information that will be used to evaluate and set the fair market value of the property. This information will be provided in a report to the mortgage company and the buyers.
If the mortgage is a FHA, VA or RD loan, the appraiser may be checking additional items on the home such as GFCI outlets, handrails, deferred maintenance and attic issues.
What happens if the property did not appraise for the contract price?
This can be a delicate situation for both the buyers and the sellers. Depending on what type of loan the buyers are applying for, the appraisal can make a big difference on the property closing.
The Mortgage Company
Mortgage companies do not provide loans for more than what the property is appraised for unless under special mortgage programs. If there is a large enough down payment, sometimes the deficiency can be absorbed by the buyer with the LTV (loan to value). In many cases the buyers are looking to negotiate with the sellers for a modified purchase price.
For the sellers, they are faced with having to potentially reduce their contract price or risk the sale falling through due to the property not appraising for the contract price. For the buyers, they may not be able to purchase the property if the seller is not willing to renegotiate the price.
The Next Steps…
The first step is to request a copy of the appraisal report.
The mortgage company can only provide the report to the buyers. Most contracts that I have read do not include language requiring the buyers to provide a full copy of the appraisal report to the sellers.
A good strategy may be adding language when negotiating the contract in the beginning. This can make the next steps easier.
Once the sellers have a copy of the report, it is important to carefully exam the report for accuracy. Some of the most common errors found are with the property itself. Here are a few examples.
Check These Items…
The square footage of the property is correct? Size does matter when it comes to a house. If there is less square footage listed in the report versus what is actually there, that will impact the appraised value.
Always check to make sure the bedroom and bathroom count is correct. Those are given value as well.
If you have a garage, make sure that is included in the report.
Check the acreage of the property if it’s a single-family home for accuracy. Is it an income producing property? Make sure that is noted.
Make sure the contract price is listed correctly in the report. If there have been price changes on the contract that have not been provided to the mortgage company, that can impact the appraiser’s report. The mortgage company delivers a copy of the contract to the appraiser as a part of the process. The appraiser uses the information as part of the appraisal. It’s important they have up to date information. This could be why your property didn’t appraise.
Check to make sure exterior improvements have been included in the report. Sheds and outbuildings are debatable with some appraisers on whether they have value in a report. If they are excluded from the report, it may have made a difference on the appraised value.
Solar Panels
The other big item is solar panels. Leased panels do not carry value since they belong to the vender issuing the lease. If the sellers own the solar panels, they do hold value depending on how old they are. If they are not included in the report, this can impact on the appraised value of your property. This could also be why the property didn’t appraise.
Check the comparable properties in the report to make sure they closed within a reasonable timeframe. The market is changing quickly. Properties that have sold over an extended length of time may not make the best comparable sales. Properties sold in different marketplaces or towns may also not be the best comparable sales. In real estate the term “location, location, location” is there because some towns or neighborhoods may be more desirable than others. That can impact value and why the property didn’t appraise.
Are They a Local Appraiser?
It’s important to check to see where the appraiser is coming from prior to the visit. Local knowledge is critical to a report.
An appraiser coming from another area may lack knowledge of the area impacting the report.
It is also important to let the appraiser know prior to their visit if the property has received multiple offers and any improvements made to the property since you have owned it. This can certainly have an impact on value. Owned solar panels, not leased, also carry value on an appraisal report depending on the age of the panels.
Can I Speak with an Appraiser?
Despite the rumors that you are not allowed to speak with the appraiser, this is not true. Realtors, buyers and sellers can speak with the appraiser regarding points of fact about the property. What is not allowed is bullying, threatening or any action that might be construed as bad behavior towards the appraiser. Please remember, they are there to perform a vital role in the purchase process. We are not perfect, and mistakes can happen. The important piece is getting it resolved in a professional manner. These errors should be conveyed to the appraiser, however, will need to be conveyed to the mortgage company as well. The appraiser may not be able to make changes to the report without the authorization from the mortgage company to do so.
VA Loans
There are other steps that can be taken as well depending on the type of loan. The VA has their own process for the buyers call the Tidewater process. Tidewater gives the VA approved appraiser a way to request additional information that might support the purchase price of the property if your property did not appraise. Click here to learn more. The VA has some flexibility to waive items such as handrails and other conditions under certain circumstances.
These are simple steps to take to defend your contract price leading to a mutually beneficial closing for everyone.
If you want to learn more, contact me today.
Mark Montross
Catamount Realty Group
85 Prim Road Suite 202
Colchester VT 05446
802-825-1353
[email protected]
CatamountRealtyGroup.com