The current Denver real estate market can only be described as hot. In fact, buyers have been purchasing homes here in Denver faster than anywhere else in the U.S.
According to Redfin, Denver was the fastest-moving market for the months of March and April where the typical home was under contract in just six days – faster than even sought-after markets like Seattle and San Francisco.
In this type of housing market, sellers become concerned that their appraisal might come in lower than expected. If you find yourself in this situation, it certainly doesn’t have to spell disaster! Today we’ll help you understand more about why appraisals sometimes come in low, and what your options are going forward.
Why Do Some Appraisals Come In Low?
Appraisal issues are actually quite common. The top reasons for a low appraisal include:
- Multiple offers resulting in artificially inflated home prices.
- Rising home values because of limited inventory and few comparable sales.
- Overpricing by the seller.
- An appraiser who doesn’t properly understand the many influences on home value.
The first two can go hand in hand and is what we’re seeing in the Denver market. Even if your appraisal comes in low, you still have options!
1. Reduce The Price To Match The Appraised Value
As a seller, you can always choose to sell the house at the appraised value. It’s not even necessary to negotiate with anyone. It’s a quick way to bounce back from a low appraisal – but keep in mind you might be leaving money on the table, especially in a seller’s market.
2. Have The Buyer Make Up The Difference
You might be in a situation where the buyer has enough available funds to cover the difference between the appraisal and the selling price. If that’s the case, and the buyer is confident in the home’s value despite the appraised value, he or she can add the difference to the downpayment.
Most lenders will be satisfied with this arrangement since their concern is that the size of the loan isn’t greater than the value of the home.
3. Opt To Split The Difference
In this scenario, the seller lowers the price and the buyer adds to the down payment.
Let’s say the difference between the sales price and the appraisal is $10,000. The seller could opt to lower the price by $5,000 and get the buyer to add in another $5,000 at closing. This option requires cooperation and hinges on both the enthusiasm and the financial positions of both the buyer and seller.
4. Challenge The Appraisal
This one is least likely to end in success, but can still be worth a try.
When an appraisal comes in short, you have the option to work with your lender and real estate agent to determine whether the appraiser was thorough. For example, did he include all relevant comparable sales on the report?
Several factors go into an appraiser’s selection of comparable sales, including location, size, age, and condition of the recently-sold homes being compared to the property in question. It might also be worth looking into just how recently these other homes sold.
After discussing the situation with the real estate agent, the lender will decide if they think a value dispute is warranted. If they decide there might be a case, they’ll write up the dispute and present it to their bank’s appraisal department.
The dispute process is both complex and slow – involving many federal appraisal regulations. In addition to being patient yourself, make sure your contract allows you enough time to go through the dispute process in its entirety.
If the dispute is resolved in your favor, you can use the deal structure you had originally. If the appraisal value is found to be valid, you can still opt for one of the three solutions above.
Relax! You Have Options
At the end of the day, the hardest part of all might be staying calm and learning to roll with the punches of the homebuying/homeselling process. Always remember you’ve got experienced pros on your side, the local housing market is robust, and you’ve got plenty of options!
Disclaimer: Citywide Home Loans does not offer appraisal services.