Low lender’s appraisal can put higher offer at risk

Ilyce Glink and Samuel Tamkin

Q: I am selling my home in Minnesota, where the market is hot. I received multiple offers over list price.

Unfortunately, the lender’s appraisal for the buyers came in under the contract price.

The appraisal was about $275,000. We’d listed the home for $280,000, and the offer was $290,000.

There are limited comparables in the neighborhood, as inventory is low. My real-estate agent is compiling market data to challenge the appraisal. What else should we do?

A: Your agent is doing what he should do.

A lot of sales in a neighborhood makes it easier for an appraiser to determine an appraisal amount. With limited sales in a hot market, an appraiser might struggle to come up with a home value that keeps pace with the market.

An appraisal, in our view, is not an exact science. Appraisers who have been in business for years talk about how some values come in low and others high.

In most cases, though, appraisers hit the mark on a home sale price.

Appraisers who have little experience in a market might produce appraisals that fall way short. The appraiser in your situation is close to the offer amount. And the appraiser might be right.

The reality is this: If your buyer wants your home, he can use the appraisal to negotiate a lower purchase price.

In a hot market, though, another buyer might be willing to buy the home even when the appraisal is a bit low, and that buyer does so by putting more money down in cash.

You need to evaluate how badly the buyer wants the home, how badly you want to sell, whether your realestate agent can get more information to the appraiser that helps increase the appraisal amount, and whether other buyers are waiting in the wings.