Below The Belt
Monday, August 28, 2017
Orlando REALTOR® | SeptemberOctober 2017
An appraisal that comes in lower than the agreed-upon purchase price hits buyers hard; here’s a strategy for recovering
By Leslie A. Heimer
Once contracts are executed and the ink dries on the earnest deposit check, your buyers will likely set their sights on financing. And why not? With interest rates in the high 3s and low 4s, consumers cannot borrow money any cheaper.
Orlando’s low interest rates and dearth of inventory, particularly in the lower price category, have contributed to fierce competition among buyers and to consistently rising asking prices. They have also contributed to an increase in situations where a home’s appraised price doesn’t meet the agreed-upon purchase price.
This situation leaves buyers wringing their hands and facing a big decision.
Typically, an appraisal evaluation is conducted after the purchase price has been agreed to. It is currently not uncommon in Orlando to see the appraisal come in five, ten, even fifteen thousand dollars lower than expected.
Here are some tips to avoid appraisal pitfalls:
Order the Appraisal Early
Often it can be difficult to order the appraisal too early in the loan underwriting process as the borrower’s credit, assets and income, and liquidity position are being analyzed. Appraisals are expensive and no one wants outstanding invoices as the result of an incomplete transaction.
Attend the Appraisal Inspection
It’s helpful for the listing agent to attend the appraisal inspection, should the appraiser need extra data points or neighborhood information. A listing agent’s expertise can provide insights into an area that may be distinct in location or upcoming closings to be used as sales comparisons.
In addition, the listing agent should be in attendance because Section 1472 of the Dodd Frank Act (known as Appraiser Independence) restricts mortgage representatives in their communication with an appraiser. This new process was an attempt to eliminate implied pressure on the appraiser to inflate values that may be unjustified based on sales comparisons.
Prepare Your Buyer
Have a plan B in place for how your buyers will respond should a low appraisal come in on the property. Will they pay cash for the difference? Go back to the negotiating table with the sellers and try to split the difference (risky if there are more buyers in the wings)? Cancel their offer outright? And finally, is the buyers’ lender creative enough to help restructure terms and payment?
The bright side to the challenge of low appraisals is that they are an indication of a healthy real estate market and thriving economy. The values should catch up to the demand as more transactions occur, and more comparable sales are available for appraisers to use in their evaluations.
Leslie A. Heimer is Orlando market president and senior lending partner for American Liberty Mortgage, an ORRA affiliate member. She can be reached at email@example.com.