Wrestling over the numbers to determine a home’s price can be a challenge.
There’s the price the seller hopes beyond hope he can get. And there’s the buyer’s initial offer price. That’s usually different from the price he’s actually willing to pay for the house.
There’s also the price the seller’s listing agent believes the house should be listed for. That’s usually different from what the listing agent believes the house will actually sell for.
To close this seemingly insurmountable chasm, the sellers usually come down a bit from their dream price, the buyers come up a tad from their low-ball offer, and an agreement is reached.
How long that takes, how many counter offers have to go back and forth, and how much money is in each incremental counter-offer are unique to each transaction.
Yet, the fun with numbers doesn’t end there.
Unless the buyers are paying cash, the bank’s appraiser determines the appraised value of the home.
The appraiser contacts the listing agent, then makes an appointment to conduct the appraisal, which involves taking measurements, photographs, and detailed notes on the condition, features, amenities, improvements, additions and noticeable defects of the home.
The appraiser comes up with a handful of comparable homes that have actually sold in the last three months, then writes up the appraisal report.
The appraisal report includes specific details of the “subject property” as well as the comparable closed sales. The appraiser has to make value adjustments to accommodate differences between the subject property and the comp. These value adjustments are for a pool, a view, an extra bedroom, or upgrades that add or subtract from the value of the comp against the subject property.
Then the numbers get balanced, and there’s an adjusted sales price of the comparable to make it like the subject property. If all the math works out, the comps support the contract price and everyone breathes a sign of relief.
Five things can happen when the appraised value comes in less than the contract price.
The buyers can make up the difference; the sellers can reduce the price; the buyers and sellers can split the difference; or the buyers can cancel.
Or the fifth option – the listing agent digs a little deeper and discovers that there are several value adjustments that the appraiser failed to include, and she can submit this evidence as a challenge to the appraisal and ask for an amended report reflecting an appraised value at the contract price or higher.
Then cross her fingers and toes that it gets approved.
Contributing columnist Leslie Sargent Eskildsen is an Orange County real estate agent. She can be reached at 949-678-3373 or leslie@leslieeskildsen.com. Her website is leslieeskildsen.com.
