It’s a nightmare scenario. After brokering an excellent deal and receiving an offer right at or slightly above purchase price, the home sellers, buyers, and agents are simply waiting for the final details to fall into place, when the unthinkable occurs: an appraisal below purchase price.
Nothing can kill a real estate deal faster than an appraisal falling short of the agreed-upon purchase price because buyers can’t get a loan for more than an appraisal says the house is worth. The National Association of Realtors reports that about 10 percent of canceled sale contracts are due to low appraisals.
So what’s a real estate agent to do when this situation occurs? First, these are times when commission advance can help agents maintain cash flow to their real estate businesses while sellers, buyers and agents attempt to salvage the deal.
So, should you seek a second appraisal? Here are a few things to consider.
It’s important to remember that an appraisal is simply the opinion of one appraiser. This means two different appraisers can conclude two different values for the same home. As a real estate agent, you have certain tools at your disposal to determine whether an appraiser’s opinion is accurate.
Most lenders have a process for challenging an appraisal, so savvy agents often start by pulling comparable properties that have recently sold and making a case to the buyer’s potential mortgage lender. Appraisers typically pull comparable sales information from multiple listing services, so if sales occurred outside of the listing service, point those out. Also, check if the comparables used by the appraiser were short sales or foreclosures. Short sales and homes in foreclosure usually sell for less than homes sold by owners in good financial standing with their lenders.
Find out the lender’s appraisal challenge process. Appraisals cost the buyer or the lender, so be prepared to give specifics about what the appraiser missed in valuing the property. In addition to providing comparable property sales, be prepared to show improvements to the home that an appraiser may have overlooked. If the appraisal shows two bathrooms when there are actually three, ensure that the lender or appraiser on a second pass knows the correct number of bathrooms and bedrooms and the correct square footage of the home.
Many times, these contracts that fall apart due to low appraisals can be salvaged, but it takes research and effort to get the job done. An express commission advance can keep the bills paid until a delayed deal closes.