3 Reasons For A Low Home Appraisal

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    For home sellers in a hot real estate market like Nashville’s there is really only thing to fear. 

    The low home appraisal. Here’s how it can happen. The seller may list the home at a certain price, say $400,000 and the buyer agrees to pay that amount. Seems like it’s a done deal and everyone is happy with the matter. Until the appraisal comes back at $370,000, which is the amount used to determine what the bank will lend. The problem is the seller isn’t going to want to lower the price and the buyer may not have cash to pay the difference, even if they wanted to do so.  This can mean the whole sale falls through and the seller is forced to find new buyers willing to pay more out of pocket, or eventually lower the asking price.

    What causes a home appraisal to come in lower than expected? Our top 3 most common reasons:

    The comps aren’t there

    Appraisers look to comps (comparable sales) in a neighborhood or area as reference for any appraisal. If the prices are skyrocketing based on demand from the past few months but the older comps don’t match, the appraisal will be lower. There is a “market adjustment” option that you can request so an appraiser will take present day market conditions into consideration. Still, this can be difficult for transition or “up and coming” areas.

    The seller originally overpaid

    What if the seller had run into this same scenario five years ago, but had paid the difference in the appraisal and asking price in cash? That could mean the home hasn’t increased in value as much as they hoped. While the seller may want to recoup what they themselves have invested in the home, it doesn’t mean the home is worth that amount. If a low appraisal scares off other buyers, the sellers would need to consider the possibility of accepting less.

    Too many upgrades

    If the home is the best in the neighborhood, it’s likely to appraise for less than the seller might hope. Since appraisals are based on features like square footage, bedrooms, etc it won’t matter if the countertops are top-of-the-line custom or from IKEA. While these upgrades sell the home for buyers, they don’t necessarily add value to the home itself for an appraisal. For example, if two homes are completely identical but one home has a $100,000 custom kitchen renovation, it won’t necessarily mean a $100,000 difference in appraised values since other homes in the area have more modest kitchen renovations. In other words, while sellers and buyers may fall head over heels at high-end landscaping it won’t actually change what the HOME is worth.

    If you plan to sell your Nashville home and wonder what it might be worth, call DeSelms Real Estate today at 615.550.5565 and let one of our award winning agents answer your questions!

     

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