Here’s how buyers can deal with appraisal issues in our market.

What kind of challenges do appraisal issues bring up in a seller’s market like ours?

One of the most common things I’m seeing in our seller’s market is the requirement of buyers to sign an appraisal addendum when negotiating. With properties usually selling above list price, the probability of a home not appraising is very high. By signing an appraisal addendum, the buyer is basically saying they realize they’re paying above list price, they understand there’s a significant chance the home won’t appraise, and they’re willing to buy regardless. 

Since lenders won’t lend above a home’s appraised value, this can complicate things because sellers typically aren’t willing to reduce their price to the appraised value. In a neutral or buyer’s market, the buyers would generally be able to ask the seller to reduce their price to the appraised value—or offer to split the difference with them. We’re seeing a lot of multiple-offer situations, though, so sellers know they can sell above list price. With buyers typically paying a significant down payment amount in the form of a nonrefundable due diligence, sellers essentially know they have buyers in a tough spot. 

“With properties usually selling above list price, the probability of a home not appraising is very high.”

Thus, sellers are now seeking to work exclusively with buyers who know the risk of the home not appraising and have the financial ability to pay the difference between the contract price and appraised value. Presenting your offer with an appraisal addendum can give you a significant edge, but you need to understand the risks involved. 

How do you mitigate the risk as much as possible? The best way is to ask your agent to pull all comparable properties and tell you what they feel the home’s market value should be. Once you have an idea of that, make sure you have the money to cover the closing costs, down payment, and, more importantly, the difference between the home’s predicted market value and what you’re offering for it. By taking these steps, you’ll be well-prepared if you get a call from your lender that the home you want didn’t appraise. 

As always, if you have questions about this or any real estate topic, don’t hesitate to reach out to me. I’m happy to help.