Why Did it Appraise so Low?
The appraisal is a key part of the mortgage process. It makes sense. A mortgage company is not going to feel comfortable offering you a loan for $200,000 when the home is only worth $150,000. The appraisal protects them should something happen and they end up having to sell the house if the homeowner stops paying their mortgage. But it also protects a homeowner from paying too much for a home. I think we can all agree that it is a necessary step and a protection for everyone. However, when you have made it through the steps leading up to the appraisal and your appraisal comes in lower than the price of the home it can really be a bummer! We are going to look at why some sales contracts come in higher than appraisals.
Sometimes the home price is based on where the seller thinks it should be priced. The seller has a lot of emotions and money tied up in the home and basing pricing on this doesn’t take into consideration what the market is doing. According to Tom Horn, an appraiser in Birmingham, AL, “Market data is the great equalizer because it gives us perspective in pricing and helps us to price our home based on what other similar homes are selling for and it takes out our feelings out of the mix.” Without doing that, the seller could be setting themselves up for a messy situation down the road.
Similarly, if a seller/owner has put a lot of money into their home, they will obviously want to recoup the cost of their investments. There are some improvements that have a very good return on investment but there are others that do not. Tom points to inground swimming pools. “Installing an inground pool can cost $25,000 however,” he goes onto say, “it is rare that you will get that much out of it when you sell your home”.
Lastly, the seller could consider the market but if the supply is low and the demand is high then they could think, “I can price as high as I want and get it, right?”. Wrong. There’s a difference between pricing your home at the top of the market pricing and over pricing your home. Sellers who price their homes above market pricing are not interested in selling their home, they are looking for that one buyer who is willing to pay what they want. This scenario is okay until it comes to the financing part of it because the contract will most likely be priced higher than what the appraisal shows it is worth.
That is why it is so important to have the right people in place to guide you; your Realtor and Mortgage Banker should help you along the way. That’s why we are here! Give us, at Stockton Mortgage Corporation, a call! With our 99% customer satisfaction rating you can count on us to guide you in the right direction! Stockton Mortgage Corporation 1-888-914-2276