Navigating the Property Appraisal Process: Tips for Listing Brokers
So, you've made it past attorney review and inspection, and the real estate contract is signed. The deal is moving forward, and everyone involved is feeling confident. But there's one critical step left to ensure the smooth progress of the transaction: the property appraisal. In this blog post, we'll explore the essential steps listing brokers should take to prepare for the property appraisal process and address some common challenges that may arise.
Meeting the Appraiser
When the lender orders the appraisal, it's crucial to confirm and accommodate the appraiser's schedule promptly. As a listing broker, it's a great opportunity to meet the appraiser on-site. Building a positive relationship with them can go a long way in ensuring a smooth appraisal process. Here are some key things to bring to the appraisal meeting:
- Fully Executed Sales Contract: Provide the appraiser with a copy of the fully executed sales contract. This document outlines the terms of the deal and serves as a valuable reference point for the appraiser.
- Comparable Sales (Comps): Offer at least three relevant comps that support the pricing of the sales contract. Ensure that the chosen comparables are recent and genuinely reflect the property's value.
- Listing Sheet: Share the listing sheet, which includes essential property details and any updates or improvements made by the seller during their ownership.
- Floor Plans: If available, provide floor plans of the property. This can save time for the appraiser and expedite the process.
- Plan of Survey: If applicable, include the plan of survey. Having this information readily available can make the appraiser's job easier and demonstrate your commitment to cooperation.
Understanding the Appraisal Process
Before diving into the preparations, it's crucial to understand the appraisal process. Here's an overview:
- Request: The lender initiates the appraisal request as part of the mortgage application process.
- Property Inspection: The appraiser visits the property to inspect both the interior and exterior.
- Comparable Sales Analysis: The appraiser performs a comparative analysis using recently sold properties in the area.
- Appraisal Report: The appraiser compiles all gathered information into a comprehensive report. This report is often generated using specialized software.
- Lender Review: The lender internally reviews the appraisal report to ensure its accuracy and validity.
- Determined Value: The appraised value plays a critical role in the real estate transaction, assuring the lender that the property provides sufficient collateral for the loan.
Dealing with a Low Appraisal
Sometimes, the appraisal may come in lower than the sale price. In such cases, it's essential to address the issue proactively. Here are some steps to consider:
- Negotiation: Buyers can ask sellers to negotiate the sale price to better align with the appraised value. This may involve splitting the difference or finding a compromise that works for both parties.
- Appeal the Appraisal: Review the report for errors, gather supporting evidence, contact the lender, and request a reconsideration of value.
- Buyer Contribution: Buyers can choose to pay the difference out of pocket if they are still committed to the purchase.
- Kill the Deal: If negotiations fail, buyers have the option to walk away from the deal, and sellers may consider contributing to bridge the gap.
Common Reasons for Low Appraisals
Understanding why an appraisal may come in lower can help in addressing the issue:
- Fast-Moving Market: In rapidly appreciating markets, it may be challenging for appraisers to find recent sales data to support higher values.
- Lack of Data: Insufficient recent sales data in the area can force appraisers to use less relevant comps.
- Below-Grade Property: Properties with a significant portion below grade might have lower dollar per square foot values.
- Unrecognized Features: Sometimes, unique property features may not be adequately considered in the appraisal.
- Appraiser Experience: Inexperienced appraisers may struggle to accurately assess a property's value.
The property appraisal is a critical step in the real estate transaction process. As a listing broker, your proactive approach to prepare for the appraisal and address potential challenges can make a significant difference in ensuring a successful and smooth transaction. Remember that appraisals are not the final word on a property's value, and collaborative efforts can often lead to favorable outcomes.