Sweating The Appraisal

Sweating the Appraisal

There is a small window of stress and fear in every real estate transaction.  The window of time between the loan application and the underwriter’s approval of the appraisal can be cloaked in anxiety.

From Wikipedia, the free encyclopedia

Real estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property's market value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently. Not only that, but every property is different from the next, a factor that doesn't affect assets like corporate stock. Furthermore, all properties differ from each other in their location - which is an important factor in their value.

 It is a tricky point in the process, to be honest.  The terms of the offer have been accepted by the Seller and the Buyer.  The home inspection has likely been completed, repairs have been negotiated.  The Buyer  - in most cases – has taken steps to move out of their current residence – by selling their existing house or giving notice to a landlord.  The real estate agent has processed all of the paperwork and scheduled the closing with a title company.  Title work is being done all the while as the title company’s attorney prepares to settle the transaction.  The closing is on the calendar!  The moving truck has been scheduled.  The buyer has even incurred upfront out of pocket costs like application fees, appraisal fees, and the home inspection.

Most buyers are so busy at this point with all of the paperwork and the planning that they are not really focused on the pending appraisal.  But the real estate agents are sweating in the background!  We know that an appraisal can “blow the deal.”

I find myself saying things to my buyer clients like “I am not really “worried” about the appraisal, but I will feel much better when we are on the other side of it.”  To me it is all the more stressful because my clients seem blissfully unaware of the potentially catastrophic effects of a low or “negative” appraisal.  That is okay – I do enough stressing for all of us!

In the majority of sales contracts where third party financing is involved (meaning the buyer is taking out a mortgage to buy the property and not paying with cash) there is an APPRAISAL CONTINGENCY.  The lender hires an appraiser and the report is submitted to the loan underwriter for approval.  If the “value” listed on the appraisal is not equal to or greater than the sales price in the contract, there is a problem.  In most cases, there are 3 options.  1. The Seller can reduce the sales price to match the appraisal 2. The Buyer can bring cash to the closing to make up the difference between the appraised value and the sales price on the contract 3. The Buyer can void the contract. 

In the past 18 months, interest rates have been incredibly low.  This caused a huge rush on refinancing, meaning that appraisers were backed up for weeks.  This created a longer turnaround time for appraisals.  Meaning the “appraisal sweats” could last for weeks!  Also meaning that a transaction could be very close to settlement – a very difficult time for a deal to fall apart.

Recently, the refinance rush is slowing down as rates tick up – and appraisers are getting out to properties within a few days.  This means less anxiety and faster closings for all! 

Catherine Jouet has a diverse understanding of home sellers, buyers and investors in the North Virginia and Washington, D.C. markets.  Licensed in VA, MD, and DC, Catherine is a resource for all of your real estate needs.  CONTACT ME today or Visit My Website