The Austin and surrounding suburbs real estate market is trending up and that can create problems with low appraisals. Many sellers are afraid of receiving a low appraisal. Sometimes sellers have already spoken with another listing agent before choosing to work with me. When I ask the homeowner what the other listing agent suggested they can do to prevent a low appraisal more often than not the homeowner says the other agent just shrugged his shoulders and said…”There’s nothing we can do about a low appraisal. We’ll have to hope for the best.” Not true! There are some procedures we can do to help avoid a low appraisal from killing your sale. My background in mortgage lending and working with appraisers gives me extra insight into how they establish value. If you follow these 5 steps you will have a better chance of not only getting a contract price that reflects the appreciating market, but also a contract price that can be closed.
1. Negotiate the contract to include the Appraisal Waiver Addendum
It is possible to sell your home for over the appraised value. We have sold many homes at a price we knew would be higher than the appraised value. Understanding the standard contract and what you can negotiate will make your sale less stressful and more profitable.
One big change to the standard contracts we use in Texas is the creating of a form where the buyer and seller can agree up front what will happen if the home does not appraise for the sales price. Within the contract a buyer can agree to purchase the home regardless of how low the appraisal value comes in at. A buyer can choose to completely waive the appraisal contingency or they can partially waive their right to terminate a contract. For example, a buyer can purchase a home for $525,000 and agree not to terminate the contract provided the home appraises for at least $500,000.
This appraisal waiver is also a great tool that buyers can use to compete against cash offers in a multiple offer situation. When there are multiple offers and one offer is a cash buyer a seller may be more likely to accept an offer from a buyer using financing if they do not have to worry about the sales price. By including this addendum in the contract, the buyer can agree to increase their down payment to cover any shortage between the sales price and appraised value removing this obstacle from getting their offer accepted.
2. Have a detailed listing in MLS
The appraiser will begin their work by reviewing your MLS listing. Within the MLS you should attach a list all the improvements, upgrades and features of your home. Include not only the upgrades that the homeowner has completed after the home was built but also all the upgrades that were put into the home at the time is was built. Be especially detailed about money that was spent in the kitchen and master bath as those are the two areas an appraiser is more likely to give extra value.
Don’t assume the appraiser will know the difference between laminate floors and real wood floors. These details are important to provide in the MLS listing. Nobody likes to admit they made a mistake and once the appraisal has been completed it is very difficult to get an appraiser and admit a mistake and correct the value in their report.
Having a detailed listing helps in another way. Appraisers I know tell me they judge listing agents by how detailed we are. I believe the more detailed we can be and the easier we make their job will increase the odds of getting your home to appraise for value.
3. Meet the appraiser at the home we are selling
Many Realtors believe they can’t talk with an appraiser. That is a misunderstanding. What we are not allowed to do is raise our voice and say “This home must appraise for $525,000.” We certainly are allowed to meet the appraiser at the home.
By meeting the appraiser it allows us to point out any details about your home that the appraiser might miss. Appraisers are very busy, often doing several appraisals in the same day and they want to get in and out of your home as quickly as possible. By meeting the appraiser it allows us to emphasize features of your home that add value the appraiser likely would have missed in their quick walk through if they were alone.
4. Provide comparable sales information to support the sales price
When meeting the appraiser we want to provide current market information helpful to justify your sales price. That includes information about recently sold comparable homes and homes that are currently for sale and under contract.
In addition, because we specialize in certain neighborhoods, we know about homes that sold without being listed in MLS. We want to provide information about these homes that sold “off market” where the sales information would not be reported in MLS. The appraiser can use that off market sales information when establishing the value for your home.
An added benefit of meeting the appraiser is being able to explain what happened with homes that sold for a price that would not help your home appraise for your sales price. In most cases the appraiser has not seen in person any of the homes they are using as comparable properties. The appraiser can only rely on pictures that can be misleading.
For example, last week I met with an appraiser who was going to use a home that recently sold for a low price in her appraisal for my listing. That home had foundation problems and there were repairs to the foundation completed before the home was sold. None of that information was included in the final MLS listing so the appraiser never would have known that important information if I hadn’t met here at the property and we reviewed the comparable sales together. After our conversation the appraiser called the listing agent of the home that sold for a low price and confirmed the home did have a foundation problem and that was the reason for the low price.
4. Provide information about multiple offers
When a home sells for over asking price the appraiser is going to scrutinize that value even more because the appraiser knows the mortgage underwriter will have questions about the value. If there are multiple offers it is important to communicate the number of offers received as well as the sales price of those offers. It is harder for an appraiser to appraise a home for under the sales price if you can demonstrate there were multiple offers over the list price. Giving the appraiser this information helps them defend their value when the underwriter questions the appraisal report.
In the end it is important to understand the appraiser’s role in a real estate sale. The appraiser is not trying to kill your sale. The appraiser has been given a job to do and the easier we can make their job it increases the chances your home will appraise for the sales price.
Even in an appreciating market your home needs to be sold 3 times. Once to the buyer and buyer’s agent, once to the appraiser and once to the mortgage underwriter. When selling your home it is important to have someone representing you who understands this process and will be pro-active when advocating for the your property to keep a low appraisal from killing your sale.