Appraisals

It seems like a good time to talk about appraisals since they've come up in several recent transactions.

First of all, as a seller you should know that in most cases, regardless of the contract price, you will need the house to appraise at that price or you potentially do not have a deal. This is Virginia and if you're reading this blog from another state, there will probably be some differences in local regulation and customs as well as in contractual language.  But here, in most contracts, the language states that if the appraisal is less than the agreed upon sales price, the two sides must come to a mutual agreement with regards to price.  And, if the buyer does agree to pay above the appraised value, in most instances he must have cash in order to do that.  So, you can price your home above what the market is likely to bear, find a patsy willing to pay that price, and still end up without that money in your pocket!

You should also know that when an appraiser does his or her job, they are only allowed to use properties that have actually sold, not those still on the market.  If you use homes currently for sale as a guideline in how to price your home you should be aware that if everyone else overpriced their home you're setting yourself up for a problem down the road with the appraiser.

I had an incident with a recent appraisal where I received a phone call on a Friday evening from a gentleman who said he was about to be hired to do an appraisal on a home I had listed.  He wanted me to know that there was no way the home could appraise.  When I inquired as to whether he'd actually seen the home he told me that he had not.  But said he knew the neighborhood well enough to know it was impossible to justify the sales price.

This was a huge red flag.  Like REALTORS, appraisers also abide by a code of ethics.  That code prohibits them from forming an opinion as to the value of a property before doing the work of the appraisal.  This gentleman was clearly in violation of that rule.

I immediately called the selling agent, who called the lender, who was able to get this appraiser pulled from the job. This all happened within minutes after the phone call on Friday evening.  If myself, the selling agent or the lender had elected to wait until Monday morning we would have been told that we had no recourse and were stuck with the appraiser.  Lenders have put in strict policies, understandably, to make sure that none of the parties who stand to profit by the transaction are allowed to influence the choice of appraiser.  And once this one had been officially hired we'd have had a real problem.

As it turned out we had a happy ending here!  The next appraiser approached the job professionally and in so doing, the property did indeed appraise at or above sales price.  And who doesn't like a happy ending?!