In an uncertain market, there are several reasons why this can happen. First, banks are now required to choose appraisers somewhat blind, so they can’t necessarily use someone local who knows the market. For instance, I had an appraiser come from Spartanburg, SC to value a property in Forsyth County, Georgia. A 4,000 sq.ft. home in Spartanburg doesn’t cost as much as one in Cumming. There was a natural bias for this appraiser to not understand local values.
Second, some properties are just hard to match up with sold comparables. The comparable sold properties ideally should be in the same subdivision and have closed within the last 90 days. Appraisers also need a minimum of three sales to compare.
This made me do a quick analysis of sales within Forsyth County from January 1, 2011 until now. Of all the hundreds of communities within the County, there were only thirteen with three or more sales so far this year. The highest two had seven sales and were Chattahoochee River Club and Windermere. Olde Atlanta Club and St. Marlo had five. Champions Run, Green Summers and Riverstone Plantation had four. Brandon Hall, Fieldstone, High Gables, Longlake, Polo Golf & Country Club and Villas at Habersham all had three sales this year.
So, back to the question of “What happens when my appraisal comes in low?”. The first thought is to see if the buyer can add a higher down payment to make up the difference and complete the transaction. This may sound far-fetched, but I had exactly this situation on a $425,000 home that appraised at $400,000. The buyer came up with an additional $20,000 and we closed the sale. In everybody’s opinion, the appraisal was just flat wrong.
Another option is to have the seller lower the price to the appraised value so the sale can be completed. In a lot of cases, this is exactly what happens. The listing agent should gather some comparable properties and work through the loan officer to try and get the appraisal amended, if possible.
In another case where we had a log home with very few comparable properties, we simply had to change lenders to get things done. Even in this case, the mortgage officer had to really fight for the buyer who incidentally had about $125,000 equity in a $375,000 property.
The last option is to simply have everyone part ways. It’s not the best option, because at this point everyone has time and money into making the transaction happen. However, in some cases this is the only way to resolve the situation.