What Happens if You Get a Low Appraisal?

 

The good news for Costa Mesa real estate owners is that the market is hot, and values are increasing. When most people sell their home, the one thing that they often don’t consider is the question of whether a bank will lend money to a buyer on their home. Lenders have been stingy about giving money out to borrowers unless they fit nicely into criteria that suits the bank. Don’t get me wrong – lenders are definitely lending on Costa Mesa real estate homes.

 

However, with the market being up, sometimes the values are trailing as the market rises, and the big wall we will hit is when the appraiser gets to the property.

 

 

Here’s a sequence of events: You as a seller decide to sell your Costa Mesa home. You review all of the Costa Mesa neighborhood comps with your realtor, agree that the market is super hot and it is a good time to sell, then place your home on the market. Your realtor gets lots of action on the home, and you are presented with three offers to buy your home. Good problem! You work with the offers, and you come to terms with the best offer.

 

Next, the buyer does their inspections, and everything is fine with the home. One of the last steps prior to the lender being willing to lend their own money on a home is the appraisal of the home. A professional, independent third party appraiser is hired by the bank to assign an independent valuation of the home, and justify to the bank that the value is fine, and they should lend money to the buyers.

 

All of that is fine – until the appraiser puts his opinion of the home well below that of the contract value. What do you do? Unfortunately, this opens up a new negotiation between the buyer and seller. The seller can lower their price to the appraised value (they never want to do that), the buyer can make up the difference in appraised value/lending value (the bank will only lend 80% of the appraised value), or the buyer and seller can meet in the middle.

 

Trust me, this is not a fun deal if you are on either side of the equation. Everybody was happy when the contract was agreed to, and no one wants to deal with a new money issue in the middle of the process.

 

In a hot market, a lot of times sellers will hold their ground because they do have backup offers. Just because one appraiser comes in with a low valuation doesn’t mean the next one will. If a Costa Mesa seller doesn’t have other options, then they probably need to work with the buyer.

 

It takes time for a market to recover, and appraisers are being held to the report that they write., unlike in the boom of the last decade.

 

My advice? If you have upgrades in your home you can get away with a little higher price than the last comp sold in your neighborhood. Don’t shoot for the stars when you price the property, it usually backfires and everyone comes away upset.

 

If you need help with your Costa Mesa real estate, I would love to help! Please feel free to call Colin at (714) 743-9882 or E-mail me.