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Avoid Low Appraisals On Real Estate, Part 2

By: Jill Urban

With a contract signed for a set price, all that's left to do is have the bank appraise the property for financing. As we explained in our last report, that's where things can get sticky. New guidelines are bringing more out of town appraisers to New York City who may not understand the ins and outs of the market and could underestimate a home's value.

"These days an appraisal can hold up a deal, delay a deal and even put a deal in jeopardy by not coming in at the right amount of money," said Richard Grossman of Halstead Property.

Since they are randomly selected, you can't control who the appraiser will be, but Grossman says your broker should be there to make sure that person has all the information needed to make an educated evaluation.

"Your broker has to take an active role in the appraisal," Grossman said. "They have to meet the appraiser at the property, be prepared with comparable similar property to show the appraiser and to understand the process to understand what that bank will look for."

Just be careful how far back the comparables go. A few months ago, we were in a declining market. Since it has somewhat leveled off, the current market prices may actually be a little higher.

Aside from comparable sales information, experts say the most valuable tool could be other bids on the property.

"Many times what I advise people to do is to get all of their offers in writing. "There is no better comp for a property than what another person is willing to pay for the same property," said Jeffrey Jackson of Mitchell Maxwell.

If the appraisal still comes in low, you have some options. First, you can go back to the lender and appeal the appraisal and present new information or identify any errors in the original report. Unfortunately, that can be time consuming and isn't always successful.

"My advice is if you have a problem with the first lender and you believe it's a legitimate purchase price, that it is market you should either encourage your buyer to move on to a different lender or move on to another buyer," Jackson said.

Another option is for the buyer and seller to work out an agreement. Either the buyer recognizes the true market value and can afford to put down the difference, or the person can go back to the seller and ask to renegotiate the purchase price.

In addition, these days some may choose to get an independent appraisal. It wont affect financing, but it could give buyers and sellers a little perspective on the value and price.

Just remember, the appraised value is not necessarily the same as the market value and it's important to understand the difference. Also, being aware of the current situation and the risks means fewer deals will fall by the wayside.

Post Date: 9/18/2009

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