Low Appraisal?
By Jim Palmer Jr.

There are basically two processes of qualification when a buyer decides to purchase a property using a bank loan.  The buyer has to qualify for the payments and the property has to qualify as the collateral for the loan.  Once the buyer has all but given blood to the loan officer and the underwriters make the determination that the buyer is a good risk, the loan officer initiates a request for an appraisal of the property.

The rules for choosing an appraiser are much different than in the past!  The loan officer can no longer request that good-ole-boy appraiser who has been sure to bring each property in at value.  Instead, appraisers are chosen from a pool and the lender never knows who that will be.  The lender or loan officer cannot legally have any contact with the appraiser, other than receiving the finished appraisal. 

The appraiser’s job is to justify the purchase price to the underwriter of the loan, assuring them that the collateral is sufficient for the risk.  But it is a subjective process since an appraisal is an opinion of value and not a fact.  An appraisal of the same property by two different appraisers may yield two completely different values.    In the end, the underwriters have the power to say no, or to question the validity of the appraisers work if it seems inconclusive.  They really want to be convinced!

In the uncertain market like we are currently experiencing, appraisers sometimes find it difficult  to match the expectations of buyers and sellers in terms of meeting the agreed upon sales price.  The reason is that it is often difficult to find relevant comparable sales when all of the available sales data seems like ancient history.  That means that appraisals often come in at a value below the agreed upon purchase price.  That leaves buyers and sellers in a quandary!

One solution is for the seller to take less than what they had agreed upon, but when the market is heating up  they may easily find another buyer who can overcome such a deficit by making up the difference in cash, or by paying cash altogether.  Another solution may be for the buyer and seller to split the difference.  The bottom line is that if they cannot come to a meeting of the minds, the transaction will fail.  In this sort of a dilemma, a good agent is worth their weight in gold!