In today’s real estate market, pricing a home has become more important and at the same time more difficult. When selling your home, price it too high and no one will even look at it. Price it at the current market level and you still have to deal with the oversupply of homes for sale that exists. And with all the foreclosures and short sales out there, market prices are becoming more and more distorted.
Some neighborhoods are easier than others to get the price right. When I look at comparable properties to do a market analysis, I need enough “normal” arms length transactions to support the listing price. If there are distressed home sales in the neighborhood, it’s easy enough to disregard them if we have at least 3 homes that have sold under more traditional circumstances. But we have to be careful.
The appraiser will not always disregard distressed property sales. The appraiser also may not use the same comparable home sales I used either. If you don’t consider these things, the appraisal can be the unanticipated problem that suddenly appears at the 11th hour.
Because of new rules for how lenders order appraisals, the appraiser might end up being someone who is not so familiar with a given neighborhood. And there is more pressure now to do appraisals that consider prices might be lower in the future, rather than higher. There are lots of reasons that an appraiser, in today’s market, might turn in an appraisal that is lower than the sell price.
Home sellers should be prepared for this possibility when selling their home. Pricing a home at it’s maximum value and letting the market tell you if adjustments are needed is a good strategy. Just make sure that maximum value is realistic, or you could loose valuable marketing time that you will never get back.
If you do sell your home at the high end of its price range, be prepared to deal with the possibility of a relatively low appraisal. The standard offer to purchase and contract says that the buyer can terminate the contract and that all earnest monies shall be returned if the home does not appraise at or above the purchase price. In these cases, the seller may be able to salvage the sale by lowering the price to match the appraisal.
Just remember that the appraisal is typically done a few weeks before closing. Make sure your agent is aware of when it is completed and if it came in at or above the purchase price. Usually this is one of the last contingencies that must be cleared before closing. Being prepared to quickly offer an alternative price, if you run into appraisal issues, just might keep your deal alive and get you to closing on schedule.
