If you have experienced a ‘Low Appraisal’ you are well aware of the negative affect it presents for your transaction. Appraisal standards and practices have changed in response to the falling housing market. Follow this link to read the new guidelines regarding appraisal standards which apply to all loans being sold to Fannie Mae and Freddie Mac.
1. The value of your home’s sale was artificially inflated based on multiple offers. I know it seems like a dream come true to get multiple offers on the sale of your South of the River home. If the purchase price is considerably higher than the list price, a low appraisal is a distinct possibility.
2. ‘Over-improved’ for your neighborhood or area. There are certain features buyers love and will pay a little more for in a house. However, in today’s appraisals, these features are not given any substantial value. This is true for items such as stainless steel appliances, granite countertops, paver patios and other landscaping or remodeled baths.
3. Lack of recent sales from which the appraiser can draw relevant ‘comps’—which means Comparison Properties. Sometimes there are simply no good comparison properties which have closed in your area within the past 6 months. In this case, appraisers do the best they can to adjust properties to reflect your home, a tough job to be sure.
4. Desirable location, views and lot size can increase the price a buyer would like to pay for your home. However, it is rarely given any direct and significant value in an appraisal. An FHA appraisal done for a home my clients are purchasing gave no credit to the fact the lot size was .67 of an acre. The appraiser had used comparison properties on standard .30 acre lots. He explained it this way, there are no comparisons in the past 6 months in this city which have this large lot and he cannot boost the value of the home because of the extra land. FHA does not allow an appraiser to give extra credit for land unless that land could someday be subdivided and sold.
5. If the offer on your home includes the seller paying buyer’s closing costs, it can sometimes mean the accurate value of the home is lower than purchase price. This is especially true if the agreed upon price was over the list price in order to include enough closing costs.
I have spoken with several appraisers working in Apple Valley, Lakeville, Farmington, Burnsville, Prior Lake, Savage, Eagan or Rosemount this year. Each time, the appraiser has been able to accurately define the reasons for a lower value. They are never happy to have to deliver such bad news either. One appraiser, working on my client’s home in Farmington, explained to us that he currently needs to deduct 1.5 percent for each month if the comparison property is older than 60 days. When we find a comparison property from 6 months ago, this deduction can quickly deflate the value.
Appraisals do give some value to things like views, location, overall condition of a home and quality of construction. These tend to be somewhere between $1,000-$4,000 and it is a lump sum, determined by the appraiser’s discretion.
Read my post entitled Low Appraisal? Three ways to save the sale of your home to see what you can do if your South Metro home receives a low appraisal.