Last week I wrote about how Phoenix appraisals are a crazy game. You never know what is going to happen. So the question goes back to, what do you do if your Phoenix appraisal comes in low?
Obvious answer is.. well, it depends. If an appraisal on a $200,000 comes in at $195,000, that is one thing. If the appraisal on a $200,000 house comes back at $186,000, that is a completely different ballgame.
First, hopefully the Seller’s agent has had a conversation with the Seller before the home was even listed about the possibility that this could happen. If that conversation never happened, well shame on the Sellers agent. And if that was you, shame on you.
There are a few things that could happen here
Let’s look at what the Seller wants. The Seller obviously wants the Buyer to come up with the difference. The Buyer was willing to pay the list price, so why shouldn’t they come up with the extra money, right?
The Buyer wants the Seller to drop the price, because the Buyer doesn’t want to “overpay” for the house. Obviously the appraiser knows exactly what they are talking about. Sure, a different appraiser would come up with a completely different number, but let’s not let the facts get in the way of a good emotional response.
So what are the options?
Option one: Seller agrees to lower the price to the appraised value.
Option two: Buyer agrees to come up with the difference between appraised value and offer price.
Option three: They meet somewhere in the middle.
What if there is no agreement?
Every now and then you will get a stubborn Buyer or Seller who just does not want to budge, and are convinced they are right. Then what happens?
As long as the Buyer has not waived their appraisal contingency (and for the most part you are fool if you do), then the Buyer can back out and get their earnest money back. But they are out the cost of the appraisal and a home inspection that they most likely have already paid for.
The Seller can then list the house back on the market and hope the next appraisal is better. There is something the Seller needs to be aware of though. If the first buyer was an FHA buyer, that appraisal stays with the property and you will most likely need to take FHA buyers out of the pool of potential clients.
The deal killer
Know that the real deal killer often is. Pride. Both sides think the other should budge and don’t feel they need to. Unfortunately for the Buyer, in this market (as of April 2013), the Seller has the advantage because it is very much a Seller’s market. The Seller may have another offer that has come in during the last week who is ready to pay more.
Buyers and sellers, don’t let that pride thing stand in your way. Do the best you can to work out a compromise that is satisfactory to all sides.
One thing for the Buyer to remember
The appraisal of the home is based on recent closings in the area of like properties. If your home appraised for $195,00 and you decided to pay the extra $5,000, guess what, your house at $200,000 is now a comp for the next property and it is likely you just made everyone in the subdivision more money. When that next house closes at $202,000 in a couple of weeks, you now may very well have equity. You helped raise the tide for everyone.
Image credit: stuartphoto / 123RF Stock Photo
Here is an infographic on appraisals we had made after this post was written
Want to share this infographic, feel fee, we make it easy for you to do so. Just copy and paste this text into your site.
<p style=”text-align: center;”><img title=”Art of the Appraisal” alt=”Home appraisal process” src=”http://www.phoenixrealestateguy.com/wp-content/uploads/2015/08/DeanOuellette-ArtOfAppraisal-1.jpg” width=”100%” border=”0″ /><br /> Brought to you by: <a href=”http://PhoenixRealEstateGuy.com”>Phoenix Real Estate Guy</a></p>