Low Appraisal - Oh No!

Full Video Transcript Below

[00:00:00] Well, good morning. Real estate fans, Alice Lema here again, I'm a broker at John L. Scott here in Southern Oregon. And this is another edition of our weekly podcast. And today we're going to talk about the really awful situation where you have a low appraisal and some people think, oh, well, low appraisals are great.

[00:00:17] If you're on the buyer's side, maybe not so much, but I've got three things, four things you can do if that happens. Going to help sellers and buyers. And before we get on with the four things you can do, when you have a low appraisal situation, want to give you a chance to like our channel, to share it, pass it on, to your friends, leave us a comment. Give me a like let me know, let me know how this is landing for you. It's supposed to be. Educational event. So we want to make sure we're actually helping.

[00:00:46] Okay. So back to the four things you can do, when you find yourself with a low appraisal, I feel like we should have some, some organ music, like some scary organ music right now. Well, so sign of a transition market is low appraisals.

[00:01:01] You know, as the markets tries to adjust and settle down, it it is common for the appraisers to come in a little bit on the low side, this is also symptomatic of a market that goes up too fast, too high, too fast. The appraisals are post indicators. Appraiser are going out and they're looking at what has happened in the past.

[00:01:21] And how does your purchase or your sale compare? Okay. So a lot of us buyers and sellers were more real time, especially with digital. We're more real-time in the moment right now with what the values are. Most people are getting a loan of some kind and the appraiser is the authority. So the first thing that happens when an appraisal comes in low is you get your notification.

[00:01:45] They allow the agents to do a a report and try to change the appraiser's mind. Most of us agents especially had been in the business awhile. We don't really have a lot of luck with that. The appraisers are very thorough. But a lot of times, you'll get five or 10 days to refute their report, but then you're adding that time on.

[00:02:06] So my number one suggestion is if you have time to extend your escrow and the parties are okay with that, you can try to refute the appraisal. It doesn't really work a lot of times. But it is something you can do.

[00:02:21] Number two, usually the seller gets an addendum saying this is the appraisal price. We were willing to pay more as buyers, or if you're on the seller side, that's what you get.

[00:02:32] And it says. You know, this is, this is what we want and it's due to the low appraisal. So your second idea, if you will, my second idea for you is that this addendum gets submitted and you renegotiate. The danger of that on the buyer's side, is that, you know, they the seller is renegotiating. So you just have to, you know, have a stomach ache maybe through the whole time and seeing, see what you can do.

[00:02:59] Because unless you have buckets of money in your pocket that negotiation needs to land on your side with that number saying, I'm going to buy it for this amount so that you can move forward and close the loan. So number two, renegotiate, if you're the, a lot of times you might as well just give it to the buyer, that low side, that low appraisal number. Only because your next buyer, should you choose to go back on the market, your next buyer is likely to get a mortgage and likely to end up with about the same, the same. But that is not the only solution. Okay. But number two is, you know, somebody puts in an addendum. You just sell the house for the appraised price. That's number two.

[00:03:38] Number three, the negotiation, the negotiation can look a couple of different ways the buyer can bring in extra money. But buyers, a lot of times don't have extra money. And even if they do they're overpaying for the house, you just had an authority say it's only x amount. So now if the buyer brings in more money, they have to stomach that idea that they're overpaying, but sometimes you can split the difference with the seller and it just kind of smoothes things out.

[00:04:10] Everybody's putting in their pound of flesh and the deal can close. Now if you're the seller and you can't make up the difference because you don't have enough equity which is just just kind of unusual right now. But if that's the case, then you can, or an even if you do have the equity and you just don't want to, you better, you know, think about this carefully because if your buyer doesn't play ball, then you'll be back on the market.

[00:04:33] So that's the danger of your site. So sellers be careful not to over negotiate your side, but you could push back a little, see if they can come in with three to $5,000. Some amount of money and try to bridge the gap. So that's number, number three is both parties put some amount of money in to bridge the gap.

[00:04:53] Now, number four, and this is not always my favorite solution, but sometimes it's appropriate. Number four one of the parties just says, nope, we're not doing it. We canceled the deal. Now, if you're on the buyer's side, at least in the state of Oregon, you get your earnest money back. Cause that was one of your conditions of contract, is that the appraisal come in at value.

[00:05:13] So you're not out any earnest money, but you're out time. You don't have a house and whatever inspection services you ordered, you, you know, paid that already. So, and plus you got to go back and find another. So, but that is your right to terminate. On the seller side if you just can't come to an understanding with the buyer then the property terminates. The transaction terminates and your property either goes off the market and you just don't sell it, or you go back on the market with the idea that your next buyer could end up in the same boat.

[00:05:46] Now, cash people don't get appraisals, at least around our area. They don't, they just don't do that. So you can hope for a cash buyer. Cash buyers are usually a small percentage of the buyer pool. If we're lucky, maybe they're 20 or 30% of the buyer pool, but that's high.

[00:06:03] I think the averages for buyer financing or buyer funding is 80 or 90% mortgage. I think that's kind of the average at least in the United States. So depending on your market and your market conditions, number four, Deals off terminate. Everybody goes to their corners and either start over or you pull the house off the market and and that's that. So those are the four things you can do, whether you're a buyer or seller, when you have a low appraisal.

[00:06:33] I'm Alice Lema, I'm a broker here in John L. Scott in Southern Oregon. I am a very active real estate agent. I love buyers. I love sellers, investors. I do it all. I'm around all weekend. So please reach out to me.

[00:06:44] I want to be your agent (541)301-7980 that's (541)301-7980. We'll talk again next week. Have a beautiful weekend. Bye now.