About Appraisals and What To Do When One Comes in Low
The Problem Regarding Real Estate Appraisals
One troublesome aspect of home buying and selling is how to handle low real estate appraisals.
A real estate appraisal is an estimate of the market value of a piece of real estate based upon a variety of factors.
In the definition above, notice the word ESTIMATE. If you ask five different appraisers to give you an appraisal for one home, you will end up with five different prices/values. So never consider an appraisal to be absolutely true, objective, and infallible—it’s an OPINION only. It’s not like 2 + 2 = 4. It’s more like the appraiser chooses the comparable homes (“comps”) and adjustment numbers he wants, to make the home equal to the sales price or less…depending (in my opinion) on how much down payment the buyer is paying.
I’ve seen overpriced houses appraise for the sales price and I’ve seen fairly priced homes NOT appraise for value. What’s the difference? I think at least part of it is how much the buyer is putting down on the home (but I can’t prove that). In my experience, it’s interesting how often homes appraise when the buyer is putting 20 percent down, and how often the appraisal “comes in low” when the buyer is only putting 3 to 5 percent down.
I’m a very analytical real estate agent, so I actually review all appraisals that I receive, to see what the appraiser did and how he valued the property. One thing that has always amazed me is how rarely appraisers choose true comparables to the subject home. We’re supposed to choose 3-5 homes sold in the past 6 months that are as near the subject property in size, quality, age, amenities, and proximity as possible. But I’ve seen an appraiser go back a year to find the lowest comps possible, when there are plenty of comps that are within the 6-month preferred window. I’ve seen appraisers use comps in totally different neighborhoods, zoned to different schools and with different amenities, rather than use the comps available in the same neighborhood. I’ve seen appraisers use homes that where larger or smaller than our +/-300sf guideline, even with there are appropriately sized comps available. Trust me when I tell you, the value of a home can be easily manipulated by the types of comps that are chosen. If an appraiser chooses the cheapest comps available, and the subject property is high-end due to it’s location or features, then the appraisal will come in low. If an appraiser chooses the most expensive comps available, and the subject property is priced fairly, then the appraisal may come in a tiny bit over sales price (about $5000).
By the way, home appraisals will almost never come in more than $5,000 over the sales price. Isn’t that magic? ;-D
Another problem is timing. Using 6-month old homes to value the current market is a little absurd. If you are in a hot “sellers market” then the comps 6 months ago won’t reflect the current market situation. Likewise, if you are selling in a “slowing” market, with lots of homes available, then the price you could have received 6 months ago may not be what you will sell for today (when the buyers have more options).
So all home buyers need to take these things into consideration and they should not treat an appraisal as an absolute TRUTH.
When buying or selling a home, you should keep these things in mind:
In a hot “sellers market” where there are few homes on the market, and most homes have multiple offers within a few weeks of listing, buyers should expect to pay the listing price or more to get a home under contract. The problem with this scenario is that the home may not appraise for value (the sales price).
In a “buyers market,” where there is high inventory (lots of homes available) and buyers have lots of options, then sellers should not expect to receive top-dollar for their property, and it may take longer to find a buyer unless your home is immaculate.
Options for Handling Low Appraisals
If you are a home buyer, and my client, then it’s my job to help you get the home that you want…even if it may at the higher end of the market. If you put a $400,000 contract on a home AND have an appraisal addendum, and then the appraisal comes in at $380,000 (these prices are just examples), then you have four options:
A. Ask Seller to Drop Price to Appraised Value: Send an Amendment asking the seller to agree to change the sales price to match the appraised value. Consequences: If seller agrees, then you get the house at a much lower price. If not, you lose the house and all fees you have already paid, but you get your earnest money back. Sellers do not have to agree to drop the price. If it’s a hot market, then the seller can relist, get another offer, and end up with a different appraisal. (Except FHA appraisals stay for 6 months, but the seller can just refuse FHA offers in the future.)
B. Ask Seller to Drop Price Part Way: Send an Amendment asking the seller to agree to change the sales price to meet you somewhere between appraised value and current sales price (such as at $390,000, or any number between $380,000 and $400,000). Consequences: If seller agrees, then you get the house at a lower price than you agreed to in the contract. But again, the seller does not have to agree to this and can always put the house back on the market.
C. Buyer Pays Extra for House: Move forward with the transaction and pay the extra money between the appraised value and the sales price. This will be in addition to the down payment and other Closing costs. This is not usually recommended, but sometimes necessary to get the home you really want. Consequences: Buyer pays more than originally intended, but gets the home.
D. Terminate Contract: Terminate the contract and get your earnest money back. Consequences: You don’t get the house you want and you lose the fees paid to lender and inspectors.
How Do You Choose the Right Option?
Use the chart below to help find the right option for your situation:
How To Price a Home
NOTE: This video is for normal markets and may not apply to “hot” seller’s markets where most homes have multiple offers.
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Client Comments
Sheila provided our family with a house purchasing experience that no other realtor has ever matched. To say she s outstanding is an understatement. Her knowledge, patience, grit, wisdom, attention to detail and high level of integrity is a home buyers dream. She made our transition from Georgia to Houston, TX seamless and smooth. We wouldn t recommend anyone else. Thank you Sheila for going above and beyond
Feedback on Green Shores LN 11/01/2024
Sheila made our long distance home buying process like a walk in the park Being new to the Katy area, Sheila's knowledge and reports on all the different neighbourhoods and schools were a great resource and really shows that she knows her market. Her video tours are excellent and you feel like you are personally touring the property. Sheila helped us get a fabulous home, beating out several other offers and all in our required time-frame She is hard working, skilled, organized, diligent and was always looking out for our best interest, everything that you would want in an agent. What more can we say, choose Sheila, you will be well taken care of
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Sheila was a great real estate agent. As first time homebuyers she was helpful to us every step of the way. Great communication and was able to tailor the home search to our needs.
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From the heart of Fulshear and Katy, Texas, Sheila Cox stands out as a beacon of excellence in real estate. As out-of-town buyers, our experience with Sheila was nothing short of spectacular. The entire purchase process was conducted virtually, yet it felt as if we were right there, thanks to Sheila s detailed video tours and insightful commentaries. Her in-depth analysis and thoughtful consideration made us feel confident and well-informed every step of the way. Sheila s expertise shone brightly as she skillfully navigated us away from properties with flood risks and directed us towards neighborhoods with top-notch schools. Her advice covered every aspect of the property, from potential future resale issues to specific concerns like foundation, roofing, and power lines. She knew exactly when to seek professional evaluations, seek property tax reductions, and provided invaluable contacts for flooring and inspections. The welcome gift we received from Sheila was a delightful surprise that added a personal touch to our experience. It s our third time purchasing a residence, and we can say, without a doubt, that Sheila is the best agent we ve ever had the pleasure of working with. She exceeded our expectations in every regard. Any buyer lucky enough to have Sheila as their representative will be astounded by her exceptional level of service and her profound knowledge of the area, including the market, schools, locations, and contacts. She truly deserves more than the typical agent commission. Her presence at the home inspection, her assistance with flooring estimates, and her advice on bank wire issues are just a few examples of her dedication. Sheila Cox is not just an agent she s a trusted advisor, a guardian of our investment, and a true ally in our journey of home buying. Thank you, Sheila, for making our real estate experience seamless and successful. -Yang Family
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Great experience working with Sheila and she really represented me with my interest as priority
Feedback on Luke Ridge LN 11/21/2023
Sheila has a vast amount of knowledge about Texas real estate, which was invaluable in our move from Canada to Texas. She educated us about the differences in the real estate market, purchasing a home in the US and how to care for our home in Texas. She was warm and positive and held our hands throughout our real estate journey, making sure we stayed on track and on time with both finding, purchasing and closing on our home. She is very organized and shares her knowledge with her clients in a fashion that allows you to understand and act when you need to act. We cannot say enough good things about Sheila. Our whole family love her
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Sheila goes above and beyond as a strong advocate for me as a buyer. She helps make the entire home buying process a successful and positive experience. She comes through for me and makes it happen
Feedback on Arroyo Springs Lane 07/07/2023
Sheila has a vast knowledge of the local real estate market and shared it with us in many useful forms throughout the entire home-buying process. Due to her knowledge and many years of experience, Sheila has superb judgment that was incredibly valuable. Her wealth of videos, guides, and tools helped us learn about the area and the home-buying process. When we had questions about homes or the process, Sheila was incredibly responsive. She was available on short notice to show us homes, and she clearly understood the current state of the market. We are so grateful for Sheila and 100 recommend her to anyone looking for a top agent in the area.
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We had the pleasure of working with Sheila as our realtor and her professionalism expertise and dedication truly exceeded our expectations Sheila demonstrated a deep understanding of the Katy Fulshear Richmond market and a keen ability to listen to our needs and preferences Sheila s attention to detail ad knowledge played a crucial role in us finding our perfect home Furthermore Sheila s excellent communication skills ensured that we were well-informed in every step of the process and through out this entire home buying journey Thanks Sheila for making this and amazing experience
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We learned about Sheila through the internet and early on we were happy with her reaching out and guiding us through the market around Katy Houston Her videos were especially useful and her attachments and guides are helpful for out of towners In person she is cheerful and knowledgeable and she s willing to crouch around houses looking for cracks and foundation issues in her high heels I can t recall her not wanting to help out or be unwilling to explain something I would recommend her and use her again She makes the other agents I ve used or interacted with look lazy
Feedback on Middleoak Grove Lane 05/16/2023
Sheila's quality of service is truly exemplary. To start with, her knowledge of the market and of the real estate purchase process is second-to-none. What's special is that she was able to explain everything in such a clear and concise way that gave us so much confidence. The high quality of Sheila's video tours of the houses is truly amazing. We just could not match the level of attention to detail even if we visited the house in-person. Being out-of-state buyers this meant that we had full confidence. Sheila's responsiveness, efficiency and just looking out for our interests as buyers is incredible. The examples are too many to list here. But issues from large to small, often times she will be addressing those and consulting with us before we'd even thought of these issues ourselves. We are truly fortunate to have worked with such an amazing realtor on purchasing our house. Thank you Sheila!
Feedback on Asher Falls Lane 01/20/2023
We were amazed by Sheila. First she made us feel so comfortable looking for a house out of state. Gave us the in’s and out’s of buying a home in Texas. She’s on top of everything and doesn’t skip a beep. Knowledge of Texas was spectacular and if she can’t answer a question then you better believe that she’ll investigate and give you an answer. She’s not afraid to tell you the truth and lays everything out. The one thing I loved was her video’s she taped on houses we were interested in. She looks at every nook and cranny’s of a house, bad or good. In our books she’s a super star and Texas should be proud of her. Shelia you are amazing. Thank you for every minute you gave us to make us feel welcome in Texas!!
Feedback on Jarvis Bay Pass 09/21/2022
Shelia’s knowledge of the market and customer service is second to none. She goes above and beyond for her clients. Moving to Texas from another state, Shelia provided us the opportunity to review the property via video when it wasn’t practical to fly there for an hour.
Feedback on Morning Gale Lane 08/02/2022
This was our 3rd time worming with Sheila, and like usual she was amazing. Super knowledgeable, attentive, upbeat, and made the whole process (selling and buying) as easy as could be for our family. Safe to say we will work with her again in the future.
Integrity—I promise to give you candid opinions on all homes and areas so you can make the best decisions. I won’t ignore potential defects that can cost you money, or effect your resale value, in the future…I point them out to you! My job is to protect you, as much as possible, from defective homes while helping you make a sound financial investment. You will get more REAL info from me regarding homes/neighborhoods than you ever had before! (Read client testimonials)
