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For Sale by Owner Articles • - Home Selling Tips

Will It Appraise Out?

By Robert Irwin
With home prices lower these days and lenders more conservative, many sellers, including those selling "by owner," are running up against an unexpected roadblock. After finding a willing buyer and agreeing on a price, the lender's appraiser refuses to, "hit the number." Rather, the appraiser comes in with a lower figure.
This can easily be a sale buster. Most buyers today are depending on getting a mortgage that only comes with an appraisal equal to the agreed on price. When the appraisal comes in low, there are only three alternatives:
The buyers can come up with more money to make up the difference between the lower appraisal and the sales price - often impossible for buyers already stretched thin to make the purchase.
You, as the seller, can lower your price to accommodate the lower appraisal.
The buyer can quickly ask for a reappraisal (which might not come in any higher), or switch to a different lender and a totally new appraiser.
None of these alternatives is particularly appealing. And you, as a seller may suddenly find that your sale is in jeopardy.
More conservative appraisals are now  the rule, rather than the exception. This typically happens at or near the bottom of a real estate cycle when prices have trended downward or even stabilized. It happened in the early 1990s and is happening again, now. Here's how it works:
Federal regulators, looking around at the depreciation in home prices, become alarmed. They rightly worried about the "bubble bursting." Many people bought at the top with little or no-down financing ended up owing more than their house is worth. They couldn't afford the payments (having counted on continued price appreciation to save their bacon), and might be forced into foreclosure. This means that the federal government has ended up taking back a lot of partly worthless mortgages.
Hence, the regulators tell the banks, in effect, to cut back. Within the past few months, bank regulators have twice demanded that banks follow new and more stringent rules on home appraisals. Further, Congress and Federal regulators passed rules that  ban lender influence over appraisals. No longer can a lender  demand that an appraiser meet a sales price target in order to get hired (called "pre-comping").
All of this is having a chilling effect on the home appraisal business. Appraisers, feeling the heat, have tended toward more conservative appraisals. And lenders have backed off on financing.
The overall effect is to actually slow the approval process for mortgages and slim the pool of possible buyers. As real estate professionals, and many home owners realize, much of the  surge in prices was actually been fueled by easy financing. It's not just low interest rates - it's been ever higher appraisals that have made it easier for buyers to get into homes at ever higher prices.
But, not any more. As lenders tighten up, we can expect to see continued soft  markets.
No one is the "bad guy," here. It's all a symptom of a market that was overheated. Unfortunately, for some home sellers it means that in order to save the sale, you may find that you'll have to accept less than you hoped for.  Some seller are opting to sell regardless and other to hold on for a change in the cycle.
Robert Irwin is the most prolific real estate writer in America having produced over 100 published books in the field. His TIPS & TRAPS McGraw-Hill series has sold well over a million copies and his FOR SALE BY OWNER KIT and FIND IT, BUY IT, FIX IT and other books have been strong sellers for Dearborn.
In addition Irwin writes a regular real estate column for The Wall Street Journal online and is introducing a new weekly column
Irwin has sold his own property "by owner" and during over 30 years in the business has been a broker and consultant to lenders, agents, buyers and sellers.
He can be reached through his website

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