You know the drill. Time to pray. Your listing just sold, but if it doesn’t appraise, all is lost. Stories of crappy, inaccurate, low property appraisals is way to common, and devastating. Here’s how it works wrong in Texas.*
The seller, and the buyer, agree on a price and terms for the property. Let’s say $257,000. Days before closing, the property appraisal comes in at $225,000. This is not good and there are 4 options:
- Seller agrees to amend the sales price to match the appraisal price, everyone proceeds to closing. The seller nets $27,000 less, the buyer gets the property for $27,000 less than the thought it was worth.
- Seller will not agree to amend the sales price to match the appraisal price, buyer may proceed to closing by adding $27,000 to their original down payment. Seller is happy, buyer had to invest an additional $27,000 in cash.
- Seller and buyer negotiate a combination of a lower price, and more down payment.
- Seller refuses to amend the sales price, buyer refuses to invest more cash, the sale is terminated, and the earnest money deposit is refunded to the buyer per paragraph 4. A. (1) of the TREC ONE TO FOUR FAMILY RESIDENTIAL CONTRACT (The Great State of Texas).
*These are the typical options. Each transaction is as unique as the agreed upon terms of the contract. To fully understand the in’s and out’s, ramifications, consequences and repercussions of your transaction, consult with a REALTOR® Pro, and read the terms and conditions of your contract carefully.
Why Appraisals Go Wrong
Sometimes things go wrong because the property value really isn’t there, and the appraisal is accurate. Generally, this is not the case. We find that when property appraisal come in low, it’s because the appraiser is not familiar with the specific hyper-local market of the subject property, and using inappropriate comparables. Sometimes, after reviewing property appraisal, the lending underwriter decides to adjust the property appraisal downward on their own, because they’re overly cautions. And there are other odd reasons too. Thankfully, there’s some official help on the way, read on.
What Can A Listing Agent Do?
Generally, appraisers want to do a good and accurate job. It’s OK for the listing agent to provide the appraiser with additional, and detailed information. For example, recent relevant comparable closing data and a list of interior features, upgrades and enhancements can be useful to the appraiser. The more supportive information you provide, the better.
What Positive Changes Is Fannie Mae Making?
This ARTICLE from the National Association of Home Builders outlines some of the positive changes.
Appraised Value and Appraisal Deficiencies. The new guidance bars lenders from making unilateral changes to appraisal reports, and only the appraiser who conducted the valuation is permitted to change the report.
Appraisal Selection Criteria. Fannie Mae previously followed USPAP (Uniform Standards of Professional Appraisal Practice) guidelines that enabled appraisers to accept appraisal assignments when they lacked the appropriate knowledge and experience to complete the assignment. These guidelines provided procedures on how the appraiser could gather the information needed to complete the job. The new policy no longer allows the flexibility of the USPAP, specifying that lenders can only use appraisers who are knowledgeable and experienced in appraising specific property types located in a given market. The appraisers also must have access to appropriate data sources.
Selection and Use of Comparable Sales, Including Foreclosures and Short Sales. Effective immediately, an appraiser who believes a foreclosure or short sale is an appropriate comp must identify any differences between the distressed home and the subject property — such as the condition of the property and whether any stigma is attached to it.
HVCC and AMC/Appraiser Communication Guidance. The new guidance clarifies that neither the Home Valuation Code of Conduct nor Fannie Mae requires the use of Appraisal Management Companies.
You can read the entire article by clicking HERE.
The Official Fannie Mae Word On Property Appraisal Issues / Appraisal Guidelines
If you’d like to read all the Fannie Mae details, and you should – Click HERE, or on the picture below.
Thanks for reading, and good luck with your appraisals.
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PS. How does it work in your market? Do you provide appraisers with supporting information?