All you want to do is get to the closing table! You spend weeks, months, and marketing time and effort. You suffer short sale negotiation headaches. You find the perfect deal or a great buyer. Then, BOOM! The Appraisal tries to sink the boat. Despite the new Appraisal guidelines, the numbers are still a crap-shoot that can put serious holes in the deal.
The National Association of Realtors released some numbers in a recent home sales survey that highlights the still hovering appraisal problem.
According to the survey, 16% of Realtors had to renegotiate a contract because of a low appraisal already this year. In the first quarter, 11% of Realtors reported that a contract was canceled because an appraisal came in less than the price agreed upon by the buyer and seller.
For short sales we have one, maybe two or three or more appraisals affecting the deal. More and more appraisals are coming in low due to market conditions and the conditions that must be met by the new regulations under HVCC (Home Valuation Code of Conduct) for Fannie Mae and Freddie Mac slated loans. Another issue is that many of the appraisals ordered for the buyer’s lender are not from the same area as the property being evaluated. As a result, they bring in skewed numbers.
Appraisals now have to include very RECENT sales and more comparable sales than ever before. In most markets, this aids the front end of a short sale. Getting the lender to provide a discount based upon a conservatively low appraisal bodes well for the seller. However, on occasion an appraisal for the buyer may come in at an amount below the amount approved by the lender. Uh oh….that’s a problem.
Most often this problem is found only on what we classify in our office as a retail short sale. Retail shorts are properties that don’t justify steep discounts. Condition may be superior to comps and comparable sales don’t reflect large variances.
Provided all parties are in agreement, the short-sale lender or servicer should be approached with a request to re-evaluate the short sale approval based upon the buyer’s appraisal. Generally this will require that another appraisal by the servicer or investor be ordered and even another appraisal by MI. This could add anywhere from 15-60 days to the process.
The agents will need to work diligently to keep the buyer on board while that request is made. If the buyer is an investor, getting them to cooperate is generally not a problem. But retail buyers may not be have as much flexibility.
In marketing for both short sale sellers and buyers, it is always key to set proper expectations and screen for buyers that can (that have the ability financially) and WILL work through these kinds of issues.
If a buyer wants a property, they need to be prepared that the short sale lender may counter at a number higher than their offer. If the property is appraised slightly lower than their offer, then they need to be prepared to pay the difference between the appraisal and the short sale approval to close as scheduled.
If your buyer walks, you will need a back-up buyer and be ready to go back to the lender for a new approval.
No matter what you have to be prepared to go from Plan A to Plan B-Z. Your intention remains the same: Get to the Closing Table!
Great site. A lot of useful information here. I’m sending it to some friends!