Read about the personal impact of under-appraisals and the struggle to maintain home ownership value. Gain insight on both the seller and buyer perspective.
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Under-appraisals are a challenge that can strain all parties involved in a real estate transaction—buyers, sellers, and agents alike. Having recently faced two under-appraisals, one where we were representing the buyer and another where we were representing the seller, Julia and I can attest to the fact that these situations are not only stressful but also require significant time, effort, and financial adjustments.
The Buyer’s Perspective: Fighting for Fair Value
For buyers, an under-appraisal can throw a wrench into the financing process. Lenders base their loan amounts on the appraised value, not the sale price. If a home appraises for less than the agreed-upon price, the lender may offer a smaller mortgage, leaving the buyer to cover the difference out-of-pocket. This can cause significant financial strain or even lead to the deal falling through if the buyer can’t come up with the additional funds.
On the buyer’s side, we were fortunate to eventually get the appraised value increased, but it wasn’t easy. It took three attempts, moving our argument up the chain, to make our case. This process consumed a lot of man-hours and caused considerable stress for everyone involved—buyers, sellers, and agents. The emotional toll and uncertainty during this time cannot be understated. For buyers, the fear of losing the home they’ve set their hearts on is very real, and the process can leave them feeling drained and anxious.
The Seller’s Perspective: Navigating Complexities
Sellers also suffer from under-appraisals. A lower appraised value can force the seller to lower the sale price, potentially losing money on the deal. If the seller refuses to lower the price, the buyer may walk away, leading to a lost sale. Additionally, relisting the property can result in further delays and potential decreases in the property’s perceived value.
As the listing agents, we encountered another under-appraisal scenario. The buyer was in a multiple-offer situation and had waived their appraisal and financing contingency, which is typically a strong position. However, when the appraisal came in low, they were forced to contact a second lender. This led to a 10-day delay in closing, during which the buyer had to adjust their lending products and come up with more money at the table. This not only caused frustration and financial strain for the buyer but also left us, the sellers, in a prolonged state of uncertainty.
Why Under-Appraisals Are Bad for Everyone
Under-appraisals are detrimental because they introduce unexpected financial gaps that can jeopardize deals. For buyers, they may have to scramble to make up the difference or face the disappointment of losing the property. For sellers, it can mean accepting a lower price or enduring delays as buyers seek alternative financing. Both parties are subjected to stress, uncertainty, and potentially strained negotiations.
In our experiences, under-appraisals highlighted the flaws in the appraisal process and the real-world impact they have. While appraisals are meant to ensure fair market value, when they fall short, they can disrupt transactions, erode trust, and create a stressful environment for all involved.