The Orange County Real Estate appraisal process is much different now in the era of tight regulations and oversight than it was during the market boom. In an effort to protect the integrity of the appraisal distance has been created between mortgage brokers, seller’s agents, sellers and the appraisers. With this distance comes much less options for sellers whose homes fail to appraise for the sales price.
WHY AN ORANGE COUNTY HOME MAY NOT APPRAISE
Orange County homes can fail to appraise for the sales price for a number of reasons, remember that an appraisal is really just an educated estimate of a home’s value not an absolute undeniable fact and two different appraisers can reach two different values on the exact same property. Things that will increase the chances of a home not appraising for the sales price typically include:
- Not enough recent comparative sales – if there hasn’t been a good number of recent sales in your particular neighborhood to support your value the appraiser may not be able to support your price in their opinion.
- A highly unique home where pulling comparative sales is difficult – unique homes are always going to be a challenge because there is little to compare them to, and its not like appraiser have a checklist to calculate values of different unique aspects.
- Appraiser’s limited local knowledge – an appraiser may work in Corona one day and Dana Point the next so they don’t always have that hyper local knowledge we pride ourselves on which to a homeowner actually does affect the home’s value. Most appraisers I have worked with recently have been fantastic and really knew the market well but that does not mean every appraiser will.
IF YOUR ORANGE COUNTY REAL ESTATE DOES NOT APPRAISE
If you’re the seller your options are somewhat limited. You can’t request a new appraisal or ask for an appraisal review so you are left with:
- Lower your price to the appraised value – this is the quickest but most financially painful solution for most sellers. You simply agree to sell the home for the appraised amount and get on with your life. Sometimes the difference between the sales price and the appraised value is so insignificant that this option just makes the most sense.
- Work with the buyer to meet somewhere in the middle – the buyer typically has the option to bring some or all of the difference between the appraised value and sales price into escrow to close and some buyers are willing to do this but most either are not in a financial position to do so or are unwilling to do so. This is a whole new round of negotiations and usually where we start when representing a seller whose home did not appraise for value.
- Stand by your price and realize the buyer will probably cancel escrow – some sellers have the benefit of not needing to sell right at this moment and have the ability to cover the carrying cost if and when the buyer cancels escrow. This is often the most financially advantageous for the seller especially if the difference between the appraised amount and the sales price is significant. Realize that in most situations a buyer will not come up to the sales price and prepare to go back on the market.
If you are the buyer you have the option of either asking for an appraisal review or you may try to change lenders and see if a different appraiser comes up with a different value.
PREPARING FOR A POSSIBLE APPRAISAL PROBLEM
Realizing that the changed environment creates more possibilities for an appraisal issue we do the following to try to mitigate the inconvenience any issues may have on our sellers:
- Provide well researched comparative sales to justify our pricing
- Continue marketing the property until the sale closes – this way if there is any issue and the buyer cancels we have a list of other interested parties to contact as soon as we get that cancelation order
- Re-negotiate on your behalf – if we have an appraisal issue we will review the options and likely outcomes with you and then work with the buyer’s agent to reach a resolution based on your preferences.
One often mentioned idea is to have the buyer wave the appraisal contingency. While this may sound like a good idea in reality all the other contingencies are still in place, including the buyer’s right to cancel without cause for 17 days so having them wave the appraisal contingency really has no effective teeth.
If you think you may face an appraisal issue it is always best to come up with a plan before that issue arises with a full understanding of your options and likely outcomes. As hard as it is for both us agents and sellers alike we must not take appraisal issues personally or allow them to derail our objective because at the end of the day they are nothing more than one educated party’s educated estimate of the value of something and not an undeniable fact set in stone.
If you have any questions or need any help with your Orange County Real Estate feel free to contact me I am here to help.
949 599 6860