Appraisals at Risk and What You Can Do

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Appraisals at Risk

[00:00:00] Morning, real estate fans, Alice Lema here, broker John L. Scott, beautiful Southern Oregon with another edition of the weekly podcast. Today, we're gonna talk about low appraisals. Again, volatility in the market. Appraisals are at risk during downturns. I've got five things you can do, things to talk about just in case that happens to you.

In the meantime, let's give you a quick, second to subscribe to the channel, thumbs up, leave some comments, questions, always here to help. And again, if you need to speak to me privately during the weekend, you can text or call this number floating up here somewhere 541 -301-798 . We'll talk about your particular real estate needs.

Okay. Back to the podcast, volatile market, appraisals at risk during downturns. Five things you can do to be ready and be successful. So first let's just start by volatility creates risk of appraisals coming in low as markets [00:01:00] transition down. Now, cash buyers, just as a side note are the ones that drive markets up and down, both.

So during the big crash, the cash buyers were coming in low. They were securing the deal that reset the neighborhood for six months. And, and it just kind of cascaded down that way. But markets go up that way. That's how we had our recent spike during the COVID and during our fires here in Southern Oregon, the cash buyers came in.

They didn't have an appraisal. And so they got to secure the property at the price they could afford. Hence, another six months, everybody else has to use that as the comparable. So that's kind of how the markets go up and down. We have been in an active adjusting, we're trying to moderate . Happening nationwide. We're off of our highs. So this volatility, one of the outcomes of that is the appraisals are coming in low. Some of them are coming in low by a lot. Some are coming in low by little.

So here, here's what you do. [00:02:00] Number one, be objective from the beginning. We always talk on this podcast, how being prepared helps alleviate all these dramatic scenarios. So be objective from the start, whether you're buying or selling check the closed values in the area, you're looking. You have a target property in mind, whether you're selling or buying. Be honest, don't fluff it up in your mind and say, it's better. It's worse when it's actually not. You have to be really, really, truly honest and realistic.

And then you can avoid the drama from the beginning, because if you know that if you're buying, and you know, that that house is too high and the seller is just hopeful. And you write an offer and it gets accepted. You are putting yourself at risk buyers. And if you're selling you already know it's too high and your agent might have even told you , but you wanted to test it out.

So there's pros and cons to those scenarios. You know, we use those strategies sometimes deliberately, but here we're [00:03:00] talking about in a low appraisal situation. Here's how to avoid it from the beginning, is be honest and be true to what the market is telling you for the target property.

, number two, be prepared to negotiate either way because appraisals sometimes even with best efforts from the beginning, sometimes appraisals will come in low and it's the appraiser who has the final say. So be prepared just in case in a normal to slow market the market conditions create more flexible sellers. The sellers are more likely to make up some of the difference in a low appraisal, if not all of a shortfall.

In a hot market buyers, buyers, you hear stories that they are the ones that have to make up the difference in over. But if you're buying, line up some extra cash. If you don't, have a line up somebody who does. Talk to your lender about that, just so you know, you don't get in trouble moving money in and outta your account without them knowing. But have some access to extra cash just in case. Even if [00:04:00] you know, everything looks like it should be fine. It, it doesn't hurt to have that.

And if you are selling and even if you know, you're priced, right, especially if you know, you're not priced right, but either way have some wiggle room in your equity budget as a seller so that you can make up a difference or part of a difference and just move on to close the sale.

So that's number two is be prepared to know negotiate with money on the side if you are a buyer. And some wiggle room in your equity, if you are a seller, but just be, be prepared.

So number three when there is a low appraisal, the appraisers usually offer some number of days. It's not very long. It can be sometimes two, three days. I've seen it be 10 in some situations. But the appraisers will sometimes offer a rebuttal period for the listing and buyers agent to come up with possibly other comparables that the appraiser might have missed. Now, this does not usually work. Every once in a while it does, but its rare. So don't get [00:05:00] your hopes up. If there's a rebuttal period, do your best, but go back to number two and that's be prepared either to throw in some money, if you're a seller or bring in some money of you're a buyer.

But going back to number three use that rebuttal period, just because Alice said it doesn't usually work doesn't mean you shouldn't try. You should always try cuz once in a blue moon it does. And we wanna, we wanna check every option before we go into final negotiations. Okay. So number that's number three is the appraisal will give you a rebuttal period. Use it regardless of how likely or unlikely it is.

Number four, sometimes buyers and properties qualify for a waiver, a waiver being, they don't have to do the appraisal at all. So, and it doesn't matter if you're on the buyer side or seller side, either agent can call the lender and just say, Hey, how likely is it that this person might actually end up with a waiver? Cuz they don't tell you ahead of [00:06:00] time you can. And that's a good idea. If you are a buyer especially, ask your lender, like, do I have a 50, 50 chance of being granted a waiver in the middle of my escrow, 80% chance, zero chance. It wouldn't hurt to know. Cuz you could use that in your negotiation with your offer. Just saying, Hey I have a, I have this much of a chance. Let's see what happens, take my offer.

And then if you're selling agent, you can call the lender and just ask the same question. What are the chances now? What happens is after you go into escrow after you have your negotiation and accepted offer that's when we find out, is when for sure is when the lenders first starts look working on the loan. Because there's an escrow, that's when we usually get the call or an email saying, oh, we don't wanna, we don't wanna go out and look at the house. It's all fine. But that's a very exciting moment.

The only downside is that now the buyer doesn't have that physical third party eyeballs on the house, double [00:07:00] checking the condition and double checking the neighborhood and all that. They did it, they either did it on their computer, or they just said you're putting so much down or the house is so sellable, if we get it back in foreclosure, it doesn't matter. You don't have to do an appraisal. It's not all good when the appraiser does not come out, but it sure makes the deal go through. And then again, that's the new price of the neighborhood for six months. So that's number four.

And then number five, remember it's a negotiation. When the appraisal comes in low, the buyer has the right to go, I don't wanna negotiate. The appraisal came low, I'm out. You can do that. The seller has the right to say, I'm not bringing in the money. I'm not lowering the price. I want to go back on the market and try again. That doesn't usually work real well cuz now you kind of know the value. Any other appraiser is gonna put the house, you know, right about that point anyway, unless there's some drastic market shift right immediately.

And also the seller [00:08:00] has the right to go I don't wanna play ball. I don't wanna sell right now. And in those situations, the buyer can enforce the contract by addressing the appraisal, making up the difference. You can make those negotiations happen and still move forward with a closing.

But buyers, you should know, it's not automatic that the seller's gonna go boom. Here you go. I'm dropping the price. That is normally what we do, especially in a neutral market or a slow market. The seller often will come down, but you know, every seller's different, every buyer's different. And if, if you're buying and you're kind of luke warm about the house and you're thinking maybe not the right house for you. And then the appraisal comes in low, there's your escape hatch.

So it's always best to know how you feel about the house, how you truly feel about the house early. That's always better than waiting or having an epiphany after the fact like, oh, I don't really want this. Better to have those moments early before you write your offer. But if you're in the middle of [00:09:00] escrow and this happens for the buyers, it can be an escape hatch and the sellers, you should know that.

And then for the seller, they might not wanna play ball. They might wanna just put a renter in there, take it off the market or do something else. So so those are the five things to try if you have a, a low appraisal. They frequently work out. It's rare, just so you know, it's rare that there's not some meeting of the minds in some fashion.

Most people when they're buying and selling and they're in the middle of escrow, they pretty much know they wanna move forward. That's our podcast for today. If you need any help give me a call 541-301-7980 it's up there would love to be your agent. I'm a great listing agent, great buyers agent, do a lot with the investment properties, first time home buyers always very fulfilling, riverfront property, rural property. And yeah and some raw land. We do that too. So that's it for this week. Have a beautiful weekend hug. [00:10:00] Those you love. We'll see you next time. Bye now.