How to Deal With Low Appraisals
Multiple offers usually shoots up purchase price of real state properties in the seller’s market as compared to any sales in any area and this can make the sellers assume appraisals will start to plummet. On the other hand, when prices are soft and falling in the buyer’s markets, sellers still worry that real properties will go down. Low appraisals are always possible whether the market place is neutral, cold or hot.
There are so many reasons why appraisals go down. It can be that prices from multiple offers were artificially inflated, fewer buyers are scouting from a wide inventory of homes causing the decline in market value, mass foreclosure fallout or a case of neighborhood short sales especially when comparable sales is not present, an underwriter’s incorrect evaluation of properties, overpricing, a result from amateur appraisers who do not know anything about value influences, wrong comparable sales from wrong sales target, agents overlooking sale data which are pending and in turn can also cause higher comparable sales upon closure and sometimes, problems caused by making the lender believe the price shoots up due to buyers receiving cash back from the seller. Also, overlooked often, is whether the lender can approve a loan or not. Usually, lenders want to let borrowers make a loan but are not allowed to lend due to some strict policies or illogical TOCs as stated by the law.
Although it is difficult to remain calm when a possible sale will fall apart, do not panic as both parties always have available options. Solutions for low appraisals are available everywhere online and here is a few of them.
When buyers have cash, lenders are attracted to approve a loan. This means that even if the appraisal is low but a borrower can prove that he/she can make up the difference in cash, usually a transaction between the lender and borrower is positive. A lender always considers the loan-to-value ratio and does not mean they will not approve just because the appraisal is low. It is the capacity to pay by the borrower against the loaned value that will seal a lender’s contract to the borrower.
Another option is for the seller to lower the price. It is common that a house is overpriced or value-inflated so to make the buyer and the lender happy, this option is the best. Do not waste time scouting other buyers since usually; a second lender of the buyer will have the same low appraisal. If you have the bird in your hand, keep it as they always say. It is also possible that a seller can offer a lump sump payment from the buyer after a certain period of time so that an agreement can come at a shorter time. Sellers usually retain rights to second mortgage’s discount and they can sell it to an investor at a lesser face value.
If a second appraisal is a must, you can get a list of approved appraisers in your locality. The second appraisal can be paid either by the seller or the buyer. Chances are, if the first appraiser is inexperienced, you may be lucky enough to get a higher appraisal from the second.
