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When Home Appraisal Is Less Than Sales Price In California
By Brian Bean & Tim Hardin
Who decides how much a home will sell for?
The homeowner? It’s their home and they set the price, right? Or is it the buyer? The house is only worth what a buyer is willing to pay, isn’t it? Well, sometimes, the final determination could end up being a licensed appraiser.
When home values are on the increase -- like the real estate market in theInland Empire, CA,is experiencing now -- Californiabuyers and sellers can run into appraisal issues if the agreed price is greater than the provable market value.
There are five basic options if a homebuyer’s appraisal comes in low:
1. Seller Reduces Sales Price:This is the most common solution in a buyer’s market or a balanced market. The buyer will be less likely to pay more than “market value” for a home, unless there are overriding reasons the buyer wants the property.Even in a hot market, buyers still must overcome the psychological obstacle that they are paying more than a home is worth.
2. Buyer Increases Down Payment:In a hot seller’s market, buyers line up to purchase. Prices often increase faster than appraisals. And buyers are more willing to pay the difference if the appraisal comes in low, knowing they will make up the equity as values continue to increase.
3. Meet in the Middle:Buyer and Seller will sometimes split the difference. The seller will reduce the priceandthe buyer will increase their down payment. Some contracts may add wrinkles to the negotiation. What if the seller agreed to pay some or all of the buyer’s closing costs? If the appraisal later comes in low, the seller may agree to lower the price as long as the buyers agree to pay their own closing costs.
4. Dispute the Appraisal:The buyer and seller can dispute the appraisal results as inaccurate. But chances of a valuation increase are slim.
5. Cancellation:If options 1-4 won’t work, the buyer can cancel the purchase, retrieve their earnest money deposit and move on to another property. And the seller can then look for a new buyer.
Whether you are a buyer or seller, you should have a “what if” conversation with your agent before you get started. You may want to address the issue in an offer.
More importantly, it’s critical for a seller to price a home correctly from the beginning. Overpricing a home, even if they receive an offer from a buyer, can set the wrong level of expectations and waste the seller’s valuable marketing time.
Yes, an appraisal is only one person’s opinion (albeit, a learned one) on any given day. But the bank relies on that appraisal to determine the mortgage amount. Thus, an appraisal has the ability to make or break a deal.
Want to know what your house is worth today? Call us today at 951-778-9700 for a 10-minute consultation.
Brian Bean and Tim Hardin, owners of the Dream Big Real Estate Team at Realty ONE Group Champions in Riverside, are Certified Homeowner Advocates.They can be reached at 951-778-9700,[email protected]or at http://www.DreamBigRealEstate.com. BRE #01346382 and #01771911
Brian Bean BRE 01346382 951-314-5402 Timothy Hardin BRE 01771911 951-367-5821 19322 Jesse Lane Riverside, CA 92508 951.565.8105 WE ARE A TEAM OF HOMEOWNER ADVOCATES and Real Estat....
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