John and Jane Hypothetical placed their home on the market and within hours…BAAAMMM… They received multiple offers on their home for as much as $50,000 over their asking price. They were ecstatic! Their agent was a hero. John and Jane began spending the additional money they had by increasing the price point for their new home search by adding a few additional items to the “needs” list from the “would be nice” list. The two also started thinking about a few debts they might pay off as well. The Hypotheticals got through inspections relatively clean with a small list of items needing repairs and became even more confident with the closing occurring on time for far above what they ever thought they would get for their home. Then they received a call from their hero agent, the appraisal was received by the buyer’s lender and the value came in substantially lower than the purchase price. $60,000 less, in fact. The buyers now want the sellers to lower the purchase price. John and Jane asked their agent what they should do now, and unfortunately, the hero became a zero.
Many who have sold a home have experienced this very same scenario, or something similar. It is important for sellers to understand that there are things that can be done to support the property value to avoid lowering the purchase price. Here are five things to consider if you find yourself in the position of a lower appraised value – like the homeowners in our story.
- Find a Real Estate Expert.
With a nationwide shortage of homes, prices are appreciating on homes far faster than the values being handed out by appraisers. Every single seller needs to hire an agent that knows the market and understands how to value properties in the current environment. This person needs to demonstrate how to value your home aggressively with the price while providing you with real-time data to support an appraisal issue if one were to arise.
Review a list of properties that have sold in the neighborhood and surrounding area over the past 60-180 days. Watch for upward trends in pricing, days on market. Have your agent reach out to the listing agents of these sold homes to gather more information and get the total number of offers they received for each listing. Use this information to compile a list of these comparable properties and have this ready to back up the price you settle on when you finally launch your home into the market.
- Accept the Best Offer.
Not all offers are equal. In fact, most are not. If we know we are accepting an offer that is not necessarily supported by the most recent sold properties in the surrounding area (think $50k over list price), we should only accept an offer that can make up the difference in price if the appraisal comes in low.
This awareness only happens if the homework was done to begin the process of deciding upon a price for your home. Armed with that knowledge, your agent should begin negotiating with an eye to get money currently on the table into your pockets. This can be done by simply writing language in the contract that requires the buyer to pay the purchase price regardless of the appraised value. This can also be done by writing a clause about the buyer waiving the appraisal contingency in all real estate contracts, placing a portion of their earnest money as non-refundable from the start, and possibly even waiving an inspection period.
- Evaluate the Buyer Better (Just Do It!)
Do not, you absolutely positively must not accept the buyer’s offer at face value. More now than ever before, people are having buyer’s remorse after competing against multiple other buyers for a property. That means, more buyers are backing out after making an offer than ever before. You may be saying in your head, “No problem, I will just sell it to one of the other five people fighting over my house a few weeks ago…” Those buyers, for the most part, have moved on, or now they have questions as to why the other buyer didn’t want to buy your home. This is a Lose/Lose for you.
Your agent needs to research your potential buyer. Make sure they have a prequalification letter and that your agent has spoken to the lender that issued the prequalification letter. Make sure the hard questions have been asked and answered. Do the buyers have the funds ready for the down payment? Do they have enough additional money to pay for their own closing costs? Is there enough surplus to cover the absurd offer they just made on your house if the appraisal does in fact come in lower than the offered amount?
These direct and essential questions to make sure the buyer has the ability to buy your house need to be asked by your agent. Make sure you are satisfied with the answers.
- Make Nice with the Appraiser (Appraisers are people too.)
Listing agents get one chance to make nice with the appraiser and most, not all, appraisers appreciate any help they can get. Just show a little appreciation and a lot of compassion. Make your home the easiest property to appraise on their current list of homes. Additionally, your agent may be able to provide a list of homes used to price the property in the first place.
- Present Your Home in The Best Light (seriously, make sure all your light bulbs work.)
A big mistake a seller can make regarding the appraisal is to have the appraiser walk into a war zone. We work so hard to get the house ready for pictures and showings and then after the inspections, the packing begins. Unfortunately, that is when the person, hired to establish the value for the buyer’s lender, comes into the picture and they get to see the house presented in the biggest mess it has been in all the years since moving in.
Get your home ready for the appraiser as if they were royalty. I know it is tempting to get started with the packing but don’t. And, because I know there may be some real go-getters out there that just can’t help it: Bring a box in, fill it, and take it to the garage. I have had many clients ask if it matters if the house is in showing condition for the appraiser. The answer is yes. Yes, it does matter.