5 Next Steps When the Appraisal Comes in Too Low

When recently surveyed, over a third of real estate agents reported having had one or more home sale contracts fall out of escrow per month. Autopsies of these dead deals often surface a truly lethal culprit: appraisals that come in below the agreed-upon purchase price.  

You see, mortgage lenders will only fund transactions up to a certain percentage of the appraised value of the home.  If the home appraises low, either the buyer must come up with an increased down payment amount, the parties must agree to a price reduction, some combination of both of these must happen, or the deal is off.

While low appraisals can be particularly potent deal killers, their danger to your deal can be neutralized in some cases. If you find yourself facing an appraisal lower than the sale price in the contract, add these five steps to your immediate action plan.

1. Appeal errors or bad comps to the appraiser. Read the entire appraisal report, cover to cover. See if you spot any errors – it’s not at all unheard of for an appraisal report to miss a bedroom or underreport the home’s square footage. The trouble is that what starts out as a clerical error can often result in the application of the wrong “comparables” when it comes time for the appraiser to pick the properties to use as benchmarks of your home’s fair market value.

Whether or not you find actual errors in the details about the home you’re buying or selling, check in with your agent about whether the comparable properties used by the appraiser were reasonable, especially if they are from a different neighborhood, school district, town or construction era than the home you’re trying to buy or you are aware that much more similar or nearby homes have been sold in recent times than the comparable properties you see in the appraisal.

In my town, for example, within a half-mile radius you can find vast variations in property values based on neighborhood and schools and city limits that change almost imperceptibly. Changes in the mortgage industry over the last few years have created situations in which appraisers are sometimes assigned who have little or no familiarity with these hyperlocal types of nuances which you, as a party to the transaction, might be more readily able to detect and appreciate.

If you find errors or feel that there are much more comparable recent sales that justify a higher price for the property, work with your agent to send the correct information and the applicable comps you would propose to your mortgage professional, who can relay that information to the appraiser or Appraisal Management Company and request that the appraiser revise their report and estimate of value. The appraiser has no obligation to make the change, but the more glaring the error, the more likely it is that they will. 

2. Ask for a second opinion. Particularly in cases of error or bad comps, if the appraiser ignores your request to revise the report, you might need to escalate your request to the lender itself. Here’s where it’s important to be working with an expert agent and mortgage pro with a great reputation; if they believe strongly in your case, they may be able to plead it to the underwriter and request that a second appraisal be done. The idea here is that if the second appraisal backs up your arguments, listing the correct property details or more accurate comparables, the lender is much more likely to exercise its discretion to deem the first one a dud and go with the second opinion.

3.  Renegotiate.  Low appraisals disappoint everyone around the negotiating table. If the sellers have the leeway (read: equity) or their bank agrees (in short sales), they might agree to bring the price down to the appraised value or near enough that the buyer feels comfortable putting some extra cash into the deal to close the purchase price-to-appraised price gap.  Some buyers refuse to ever do this on general principal, as they feel like it’s overpaying for the property.  Others realize that appraisals may come in low for reasons less indicative of the property’s value, like a dearth of comparable sales in the area, and figure that to get the home they want, they’re willing to kick in a little extra dough.  

Of course, ‘little’ is relative, and neither position is right or wrong for everyone.

And the decision for sellers is just as personal. When the differential between the purchase price and the appraised value is small, it can seem like a no-brainer to bring the price down if mortgage considerations allow, but it can also seem sensible to request the buyer to make up such a small difference – especially in markets where properties are getting multiple offers.  On the other end of the spectrum, when the differential is big, it is less likely that the buyer will want to come up with the cash to close the gap, and also less likely another buyer will come along and offer the appraised price. 

You would think these things would make a seller more willing to slash the price where the gap is big, but it also may make their moving plans less feasible, and tempt them to stay put and wait on the market to be more active and bear better comps. 

Work with your agent to figure out what re-bargaining position really works for you. 

If you do find yourself renegotiating price due to a low appraisal, remember that this is real estate, so everything is back on the table. For example, when the appraisal gap is only $1,000, a buyer might be willing to close the gap if the seller agrees to leave the lawn mower and do some small repairs.

4. Pay the difference or split the difference. On the flip side of renegotiating is reconsidering your personal position. If you’ve been house hunting for two years, forgoing low rates and the tax and lifestyle advantages of owning your home, and you’ve finally found ‘the one’ – in great condition, not a short sale, perfect location – you might think long and hard about whether you are willing to pay the difference between a low appraisal and the purchase price. This is especially so when the gap is small and you have the cash, or when you know the seller is barely breaking even on the deal or has offered to split the difference with you, or the short sale bank refuses to go any lower.

And sellers, this goes for you, too: if you’re committed to trying to close the deal, it behooves you to consider whether you can reduce the price on the home. Consider that in some states and loan situations, a low appraisal report in a deal that dies may become a disclosure the seller must provide to future buyers (ask your agent whether this will apply to you). The fact is, if you don’t agree to a price reduction of some sort, the buyer could very well walk, limiting your options to selling at a lower price, doing a short sale or staying put anyway.

5. Change lenders. Mortgage banks have more control when it comes to choosing appraisers than mortgage brokers do. (Fortunately, many experienced local mortgage brokers work for companies that also have banking divisions, and may be able to process your loan through that division in an effort to get your transaction a fresh start and work around a low appraisal.  Ask your mortgage broker if their office has a banking division, if you’re not sure.)

Mortgage brokers are no longer able to hand-pick appraisers for a given transaction like they once could, but unlike broker-only firms (who are forced to work through a middleman company that may pay a cut rate, attracting less experienced appraisers), mortgage banks and hybrid broker-bankers are allowed to pick the set of people included on their own short list of appraisers. I’ve found that lenders use this short list for good much more often than to try to exert any sort of inappropriate influence.

My experience has been that, when compared with the appraisers national lenders and the middleman companies put to work on brokered transactions, small mortgage banks and local, hybrid broker-bankers tend to fill their lists with appraisers who have more local experience and can appreciate the uber-important local nuances like those described in #1, above.  

Agents: What are some other low-appraisal workarounds that have worked for you and your clients? How do you help buyers and sellers decide what moves to make when the appraisal comes in low?

Source: http://www.trulia.com/blog/taranelson/2012/02/5_next_steps_when_the_appraisal_comes_in_too_low

5 Real Estate Resolutions for 2013

At the end of every December, people make all kinds of resolutions for the coming year. Typically, these are things they want to improve about themselves, ways to make their day-to-day personal or work life better or ideas to put them on track for a change. Many times these surface as a result of mistakes made in the past 12 months.

When it comes to real estate, resolutions don’t necessarily apply as it’s unlikely that you do a real estate transaction each year.  Furthermore, you can’t actually resolve to buy your neighbor’s house or sell your $350,000 home for $1 million. Well, you could, but you’d probably be setting yourself up for disappointment right from the start.

Some things are simply out of a would-be buyer or seller’s control. But, as a would-be buyer or seller, you can learn from and make resolutions based on those who have gone before you. There exists a former buyer who, if he could, would resolve to have done more legwork before buying. Conversely there’s a current seller who resolves to take the next under-asking-price offer from a buyer more seriously.

Whether you plan to buy or sell, there are some real estate resolutions that buyers and sellers can — and should — make. Here are five to get you started.

Buyers: Resolve to get your financial house in order

Planning a home purchase takes time and effort, so you should consider meeting with a mortgageprofessional early in the year. Know your credit score and understand what your financial situation looks like from a lender‘s perspective. If you have credit issues, identify what they are and the necessary steps to correct them. Sometimes, it can take six months to see your FICO score move up the much-needed 20 points to get you a better mortgage rate. A good real estate agent can recommend an experienced, local mortgage processional. Local is always important, because many real estate deals are made on relationships, and being able to meet face-to-face with your mortgage professional can be a big plus.

Sellers: Resolve to think of your home as a product

When it comes time to sell, your home becomes another product on the market. Buyers will compare it and its price to competing properties. You must put your best foot forward, because the properties that are priced right and show well sell the quickest. Pricing will get worked out once you’re ready to list, but showing well can start way in advance. A home that shows well is free of clutter, clean and as up-to-date as possible.

Start clearing out old stuff now. If there are things deep in your closets that you don’t think you’ll use between January and the time you move, consider a storage locker or making space in the garage. Does your real estate agent suggest that the basement needs a paint job? Get some painting bids now. Have you always hated how the bathroom vanity takes up so much space? Consider changing it now so buyers will perceive your bathroom as bigger. This will also help you spread out the costs of home repairs and changes over several months.

Buyers: Resolve to start feeling out the market early

You may think you only need to go to open houses once you’re ready to buy. But in reality, a buyer needs a couple of months learning the marketing, understanding home values, the prices per neighborhood and the market in general. Going to open houses in the neighborhoods where you want to buy will allow you to start feeling out the market. It may also be the best way to meet your future real estate agent. Many agent/buyer relationships are forged at open houses.

Once you engage an agent, you may make several offers before you get into your dream home. Having your agent along for the ride will allow you to compare and contrast homes you’ve visited to the home you eventually buy. The homes you see and your experience feeling out the market will serve as the building blocks toward becoming an informed buyer and making your best offer.

Sellers: Resolve to understand your timing and exit strategy

One of the biggest stresses on a seller is trying to plan a purchase and a sale at the same time. Can you afford to close on the new home before selling? If so, for how long? Do you need to sell the property first? If so, will the potential sale price support a home purchase in the neighborhood you want to be in? If not, what other areas should you be looking in? Selling and buying at the same time brings up all kinds of financial, emotional and physical stress.

Uprooting yourself from your home is not easy. What if you have to go into short-term housing? How will you get that set up and how long would you need to commit for? If you can afford to purchase and then sell, do they need to happen quickly? Are there things you can be doing in your current home so that once your new home closes, you’ll be ready to list? It’s a lot to think about and plan for, and it helps to have a strategy in place well before you have to take action.

Buyers and sellers: Resolve to engage a real estate agent now

Planning a home purchase or sale takes time. Engaging a real estate agent early in the process will allow you to have an expert on hand as you start to put the pieces together. A good real estate agent doesn’t just show and sell homes: They can be your strategic adviser, even well in advance of any actual transaction.

On the seller side, if you pulled a permit to install some new windows or replace some dry rot in 2005, likely the contractor issued a permit. But did he close it out? A good agent will figure that out and clean it up before it becomes a transaction issue. You should use your agent to literally get your house and listing in order.

For buyers, having an agent with you from the start is like having an experienced, second set of eyes and ears. Having so many transactions under the belt and years of market knowledge in their head, a real estate agent’s opinions, thoughts and ideas can save you a lot of time and money. What’s more, they can keep you on the right path toward identifying the best home, and they’ll see you through the process all the way to the closing.

Brendon DeSimone is a Realtor, a regular HGTV contributor and one of the nation’s leading real estate experts. He has collaborated on multiple real estate books and his expert advice is regularly sought out by print, online and television media outlets like FOX News, CNBC and Forbes. An avid investor, Brendon owns real estate around the US and abroad and is licensed to sell in bothCalifornia and New York. You can find Brendon online or follow him on Twitter.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Source: http://homes.yahoo.com/news/5-real-estate-resolutions-2013-214731059.html

How to spot hidden problems in older homes

"Yikes!” “Uh-oh …”

The homeowner and I were watching our contractor remove deck boards that concealed an area of a foundation wall that we thought might have settled.

The homeowner had noticed a problem when the front door began to stick, and an unmistakable settling of the floor under the door had soon followed.

The contractor and I assumed that water had caused the foundation to settle, leading to a drop of the floor system – a relatively common problem in older homes that is sometimes easily stabilized and repaired.

Photo: ZillowAt this house, however, the problem looked much worse. A large section of the band board – a strip of lumber that surrounds the floor system – was completely rotted. 

We’d expected some damage to the band since we were sure that water (the cause of the rotting) was the culprit in the foundation settling.

But here the foundation looked intact. It was the band itself that had collapsed, causing the floor system to drop several inches. Worse yet, the damage extended well into the floor joists.

Ugh. Which one of us was going to give the homeowner the bad news – her minor settling problem in the house she’d recently purchased was rapidly becoming a very expensive major repair?

Not aging gracefully

Problems in older homes are often well hidden. More often than not, serious damage doesn’t show any symptoms until the damage is significant and expensive. 

There are clues, but even trained eyes sometimes have difficulty telling normal wear and tear from the signs of serious underlying problems.


Most old-home problems, however, have predictable causes and if you know where to look you can find hints that might lead you to discover concealed damage. 

Find the problems early enough and you might be able to fix them relatively easily, or keep yourself from buying into unexpected expensive repairs.

H-2-Oh no!

Photo: ZillowWater is the number one cause of damage in all homes, especially older ones. Look for missing or damaged roof shingles, rotted or loose trim boards, and disconnected or plugged-up gutters and downspouts.

Problems with gutters and downspouts are the biggest cause of water damage – they must be cleaned and checked regularly. 

If you’re looking to buy an older home, check the condition of the gutters and downspouts – they’re big clue to finding hidden water problems elsewhere in the house.

As the ground around a home settles naturally, it can slope in toward the house and begin directing water at the foundation wall. Modern waterproofing systems can delay the subsequent damage for a while, but older homes don’t have sophisticated waterproofing systems – if they have any at all. Many very old homes have porous stone foundations that have no ability to repel ground water.

Check the grade at the perimeter of the house – settling near the foundation may indicate water in the basement.

Plug it in

Photo: ZillowWhen your grandparents’ family gathered around the Philco radio in the 1930’s listening to the Jack Benny Show they weren’t putting much of a load on the house’s electrical system – the radio and a lamp or two may have been the only electrical appliances in the house.

But now there’s a TV in every bedroom; two or three computers; dozens of light fixtures; and a whole kitchen full of modern electrical conveniences. 

The appliances have grown – has the electrical system kept pace?

Each fixture or appliance “draws” power from outside in the form of amps; the more fixtures, the more amperage required. If the fixtures need more amps than the electrical system is rated for, the system can overheat, spark, or fail entirely – all potential fire hazards.

Any home over 40 years old is a likely candidate for having an outdated electrical system. Check the electrical panel for the amperage rating – modern homes require at least 100 amps and many require much more. Older homes may have “fuse boxes” rated for 60 amps or less.


Check any visible wiring to see if it’s made of aluminum, which is also considered a fire hazard and was discontinued decades ago.

Look around the house – are there lots of extension cords and plug adapters? Are there “burn marks” around some switches and outlets? Are there rooms without any outlets at all? Replacing an electrical system to remove safety risks or to bring the system up to current codes can be a very expensive project.

Home sweet (old) home
If you own an old house, keep up with the maintenance to prevent costly repairs. If you’re thinking about buying one, check carefully for the signs of hidden damage and unsafe conditions first – a little detective work might keep you from saying “Yikes!” one day.

Source: http://homes.yahoo.com/news/how-to-spot-hidden-problems-in-older-homes.html;_ylt=AhCeJGsD4nuUFIPzs_r1mEqkF7kF;_ylu=X3oDMTRhb2FnMjM3BG1pdANNYWtlb3ZlcnNIb21lUGFnZTIEcGtnAzcwYmVkYzcwLTg5NDUtMzAzNy1hNTlhLTg4NjBjYTQyNjZjOARwb3MDMwRzZWMDTWVkaWFCTGlzdE1peGVkTFBDQVRlbXAEdmVyAzAxNzE0MjMyLTA5YjAtMTFlMi1iZGY4LWI5NjE4ODQzMjJmMA--;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3

The X & Y Generations, Down Payments, and the Current "Sweet Spot" of Buying a Home

Many articles are available online concerning the topics of our younger generation of home buyers, the current "sweet spot" of purchasing your home, and tips for saving up for your down payment.

The younger generation is showing great interest in buying homes, with recent sales at 30% first time home buyers. The main problem this generation faces is coming up with the down payment, which can be difficult even if you have already been saving. Taking out an FHA loan at 3.5% is one way to cut your down payment drastically, but this can still be a challenge for first time home buyers who may not have the income they want, or who have loans that they are paying on.

A poll showed that this generation is interested in buying a home, but they are putting it off. Interest rates will remain low until unemployment reaches 6.5%, which is estimated to happen in 2015.

With approximately two years remaining of low interest rates, housing supply is going down. Buying a house in a market with low supply will likely take longer to find a home, and due to frequent under appraisals it can take even longer to close on the home.

With this in mind, it is important that your savings will not only cover the down payment and closing costs, but additional hurdles such as numerous inspections and covering the difference if your potential house is under appraised. You will also want to have a safety net so you can comfortably pay your new mortgage.

Tips For Saving For Your Down Payment

• Evaluate how much you are spending on things you may not even use, such as movie channels, a forgotten gym membership, added cell phone features, etc. Cancel these useless charges and put the extra money towards your potential new home.
• Where is your money going? Using the free website Mint.com you can view your spending as it tracks it. It may be surprising to see that last month you spent $250 on weekend bar trips, a number you may have estimated to be much lower. By watching where you are spending your money, you will be more aware of areas that can be cut back, mainly in entertainment. $250 in bar/theater spending could be greatly reduced by hosting those same outings in your current home or apartment. 
• If you are looking to move it will mean a lot of packing and a lot of unpacking. Go through things that you already have, are these things you actually use? By selling items that you no longer use or have grown tired of you can declutter your living space all while making money!