In the process of buying and/or selling properties , appraisals are required by law but can create huge stumbling blocks. The more you are aware of possible pitfalls, the more you are able to deal with the current Florida real estate market. The old saying, “It ain’t over til it’s over” has never been more true. You’ve made a deal, Buyer and Seller are happy, and the Buyer’s bank needs an appraisal before moving ahead. Sounds great…well, maybe… but maybe not.
Here is an example. You decide to sell your home and you interview 3 real estate agents. They all make good presentations, have nice listing packages and marketing plans, and each one provides you with the all important Comparative Market Analysis, (CMA.) Agent # 1 says, based on his CMA, the listing price should be $349,000. Agent # 2 says, based on his CMA, you should list at $355,000. Agent # 3 thinks your unit is so much nicer than the competition and says it should be listed at $399,000. Of course you think your home is better than the neighbors, so you decide to go with the higher listing of $399,000. All the stars align and, two days after listing on the MLS a qualified Buyer appears who is being transferred to Miami and needs a home quickly. The offer he makes is gratifyingly near your asking price, you accept, and the buy/sell process begins. You celebrate, thinking it’s really much easier than you thought it would be.
The property goes under contract for the asking price of $390,000. The Buyer wants to finance 80%, which seems fine. Then the Buyer’s bank orders an appraisal. For many reasons, none of which are in anyone’s control, local appraisals are currently coming in horribly low, way under value. The appraisal comes in at $335,000 and everyone is screaming.
So how could this happen? It turns out there were no comparable sales in the immediate neighborhood, so according to normal and customary appraisal standards, the Appraiser expanded the search area and found a property that was similar. Unfortunately the expanded area, while adjacent, took in a completely different neighborhood on the other side of the highway where houses historically sold for 20-25% less than where the Seller’s house was located. Thus the $335,000 figure, while completely unfair, met the current guidelines and the Appraiser does not have the authority to change the appraisal. And the bank would not lend more than 80% of the appraised value.
Let’s look at math to understand what exactly it is that throws this whole deal off killer:
So the Buyer comes back to the Seller and says, “I don’t have the additional $44,000 to close; plus I’m not going to overpay for the property which the appraiser says is only worth $335,000.” Regardless of the facts the appraisal is flawed, and the Buyer’s feeling is valid. Finally, the parties can’t come to terms, the contact is cancelled and now the entire selling process begins again. The moral of this story: for the foreseeable future it appears that appraisals will be coming in low, so take this fact into consideration when pricing your condo to sell.
PRICE YOUR PROPERTY RIGHT FOR TODAY’S MARKET.