Posted by ray@lcorn on June 21, 2005 at 21:04:26:
Mike,
You’ve got a couple of options…
First, and simplest, if the buyer has a clause in the contract allowing them to walk from the deal if the appraisal does not equal purchase price, then they also have the power to waive the requirement. if you’ve got back-up buyers, you’ve got some leverage. Then you can be tough, tell the buyer to bow out and go on to the next case, or they can waive the condition and close as agreed. You didn’t say how low the number is, but if it’s just a few thousand dollars the bank isn’t going to quibble.
Second, and most distasteful to me, you can tweak the sales price or the terms, but that depends on how much difference we’re talking.
Third, what I would do before deciding anything is read the appraisal. I can’t count the times I’ve found errors, lousy comps or just plain incompetence in an appraisal. By far, the majority of appraisers I’ve worked with are conscientious and very professional about their work. But like any profession there are those who do not adhere to those standards.
Go through the appraisal page by page. Make notes of anything that doesn’t look right. Compare it with other properties in the market that you are familiar with. With multiple offers on your property at or close to the agreed selling price, then chances are the appraiser is using outdated comps, a high discount rate for the cash flow, overly compensated for perceived deferred maintenance or depreciated value, or has otherwise missed something. I’ve argued with an appraisal number more than once (but not often, thankfully this situation is the exception), and I’ve won more of them than I’ve lost by being able to either point out errors or bringing new information to light.
Last, you could have it reappraised by another appraiser. If you read the current report and find gross errors the only way to overcome it may be to find someone else. Often in that case you also have to find another buyer as well, or at least offer to split the cost of a new report.
As a side note, I always meet an appraiser on site whether I am buying or selling. I make sure s/he is aware of all the particulars of the deal, especially if there are any quirks in the property or the market they should know about, such as recent improvements, comps in the area, etc. There is nothing wrong with providing pertinent information, and most appraisers appreciate the input as long as it is relevant. I once took an out-of-town appraiser to our local courthouse and showed him comparable transfers in the records. Of course I knew they were there, but he would not have found them without someone showing the way. I did the legwork, and the comps backed up the number I needed for a refinancing.
ray