I just represented a client on a house in Anderson which we had under contract, inspected and then it fell apart because of a “short” appraisal. They call it short because it came in under or short of the contracted purchase price.
The house was a renovated ranch in an area of renovated ranches. It has two bedrooms upstairs and one legitimate bedroom in the lower level. I call it legitimate because it has an egress window cut into the foundation as means of egress in the case of fire. The yard was amazing and private and it came with a two car garage which was a great bonus in the neighborhood.
The problem with the appraisal on the property is that you needed to go more than 1 mile to get a property that was renovated nicely like this one. Also, you are in an “older” circa 1950’s neighborhood which has many original owners who have either not updated before Selling or haven’t moved- causing a draught of comparables.
The contract was for over $210,000 and the property appraisal came back over $50,000 short! That’s ¾ of what we thought was market value! The buyers and I knew that they were paying “top of the market” for the house, so no one was surprised that they were not getting a ‘deal’, but I wash surprised when we saw the independent third parties value on the property.
You can challenge an appraisal, but you are only going to get a percentage, not bring ¼ of the value back to the property with justified comparables. The Seller is not out anything financially, but more under the pressure of the market to put unjustified value on the property. The point of leverage here is in the Buyers favor as it can be resolved with a price reduction to the appraised value. Also, the Buyer could bring more money to the Closing- so if the appraisal came back at $200,000 and the contract was for $214,000; the Buyer would bring an additional $14,000 (the difference) to the Closing. Not many people can or want to do this financially, not the most viable option.
The Buyers at this point had invested $250 in an appraisal, $450 in home inspections and put money into a loan origination. Fortunate for them, all was refunded except the termite and radon inspection fees with the understanding that all of the “players” would remain the same, but it was a stressful exit from a previous very exciting time!
The message here is that you have a risk if you are Selling and Buying a property that is an “outlier”. Your most conservative position on buying a house is to understand your market ‘exit’ and what price ceilings you have to monitor as you elect to do your renovations.
Even if you didn’t use me to make your purchase, please feel free to call or email with any questions with regards to your homes value or “market position”.