Our record with getting our houses to appraise has been tremendous over the past couple years. Not only are we careful when we buy, but we make sure the final product is the best in its price range, we work closely with the appraisers to make sure they have the information they need, etc.
Unfortunately, all that work goes out the window with the appraiser makes a big mistake…as happened this week on The Flood House first appraisal…
In this market, appraisers will tend not to value a house much above the sale price of the property, even if it’s worth a good bit more. Overvaluing the property makes the lender/underwriter question why there is such a discrepancy between the sale price and the market value, which puts scrutiny on everyone — including the appraiser. So, I’ve seen a number of times when an appraisal actually skewed the value down so that it didn’t appear too high compared to the sale price.
This shouldn’t ever cause a problem, except in extreme circumstances like The Flood House appraisal. It appears that the appraiser thought the sale price of the property was $90,000 (that’s what he wrote in the actual appraisal report), when in-fact it was actually $97,500. I don’t know if it was communicated incorrectly, if he wrote it down wrong, or what happened, but the appraiser clearly was under the impression that we were selling the property for $7500 less than what we actually were.
And unfortunately, while the value came in above that lower price, it didn’t come in above the real sale price. From looking at the appraisal, it appears that the appraiser could have come in above the higher price (based on the comps he chose and the adjustments he made), but I’m guessing that he didn’t in order to avoid the large spread between the value and what he thought the sale price was.
Anyway, these days, the appraisal goes right to the underwriter, so the mortgage broker and neither of the agents had a chance to catch the mistake before the lender saw it. We are hoping we can appeal, provide some better comps and ultimately get the lender to realize that the value is a good bit higher than the appraisal indicates, but who knows — I guess we’ll find out in a few days. If necessary, I’ll also try to call the appraiser and see if he has any thoughts on how to rectify the situation.
Worst case, if we can’t get the value up, we may lose these buyers. They will no-doubt ask us to lower the sale price to the appraised price, and while we could still make a decent profit by doing that, it would hurt our ability to sell future houses in this area, as it will bring all the comps down. We’d rather lose out on this deal than hurt our profit margin for many future deals.
I’ll keep you update…