My house didn’t appraise, now what?

My house didn’t appraise

Todd: Hello and welcome to Todd Miller TV here with Oana. OK. So we’re having this trend in Las Vegas with appraisals that we had back in 2004 and ’05 where appraisals aren’t matching what’s negotiated on the purchase price.

Oana: Right.

Todd: So, tell them about the strategy, what they should be thinking and how they should do an appraisal when they’re out there making offers and it doesn’t appraise like what kind of things in practice that you know?

Oana: OK. So look, an appraisal is an opinion of value that looks at the historical of that property.

Todd: OK.

Oana: So an appraisal looks back. That they look back at sales in the last usually, 90 days and they’ll go back up to 180 days if have to.

Todd: So, they’re saying, this is what the property would have been worth if it had been sold four months ago.

Oana: Right. Now, an appraiser will give some minimal amount of appreciation in a market that is quickly appreciating but they will not give an opinion of value that really is keeping up with the market because appraisals are very conservative. Remember who they work for. They work for the lender and the lender is trying to mitigate their risks.

Todd: OK.

Oana: OK? As opposed to a seller or a broker price opinion which is what a broker like me provides where it’s my job to value a property 90 to 100 days out. When a seller says, “Hey, I want you to tell me what the value of this property is.” They don’t mean what’s the value of this property today or three months ago. They mean, what is the value of this property over the next 90 to 120 days which is the typical marketing time. OK?

So keeping that in mind, I look at what properties have done, what they’re trending going forward. And a lot of that comes from my experience of what buyers are willing to pay for a property. So it’s a lot more than just past value. It’s future value. And that future value is calculated in that list price and what that seller is willing to accept.

Todd: OK.

Oana: OK? Now, when appraisal comes in and it comes in below that purchase price, in our current market where we have a lot of scarcity and we have a lot of demand, then what sellers are saying is they’re saying, “Look, here are the options. If you come up with cash to meet the difference between appraised value and purchase price or thank you very much for playing, we’ll put the house back on the market and we’ll see it to someone else.”

Todd: Now, when you say pay the difference in cash, that’s only for a loan.

Oana: Correct.

Todd: Because if it’s a cash purchase and they do for some reason get an appraisal, there’s no law unless it’s in writing in the contract, that says the seller ahead of time agrees that if the appraisal comes in less, we’ll automatically reduce the price. That’s not normally what’s in the purchase agreement.

Oana: No.

Todd: Purchas agreement doesn’t say anything about the seller has to reduce the price.

Oana: Right. And then that also prevent people from gaining the system because of course, the purchase agreement says, “Hey, we’ll reduce it to whatever the appraised value is.” Well, I’m sure we can all find an appraiser who will appraise our property lower than market value.

Todd: Appraisal is a big deal here in Vegas.

Oana: Yes.

Todd: It’s not a government stamped of value. It’s an opinion of value. Ten appraisers will all come up with ten different values.

Oana: And I have properties that have had multiple appraisals done and they’re all qualified appraisers and they all do a fantastic job and on the same property within a couple of weeks, I’ve had two or three appraisals come in at completely different values with a really broad range percentage wise on the property. So that’s not unusual.

Todd: Do you think that in a rising market when we have problems with appraisals, that hurts none cash buyers? It hurts somebody getting a loan that doesn’t have a ton of money. They try to leverage the whole thing. Meaning, they’re trying to just put down three and a half percent or zero percent on a VA loan and then they are trying to finance the rest.

Oana: Right. So that is a huge problem. Yes, I agree. I mean we have FHA buyers that will agree to purchase a property for 170 something. That property appraised for maybe 150 and then we come to terms for maybe like a 165 or something like that where the bank will finance the FHA loan at a 150 but then the buyer has come up with that $10,000, $15,000 difference out of pocket or get help from family member or whomever in order to make the deal happen.

Buying a home is a very emotional thing and you’d be surprised how people managed to find the money to make it happen. And again, we’re talking about a market where we have more buyers than we have inventory so their choices are diminished as far as being able to really negotiate a price down to appraised value.

Todd: OK. Good. What advice would you give to a purchaser who’s getting a loan trying to buy a house in Las Vegas or in a market like Las Vegas? What would you tell them like upfront, like at the very beginning?

Oana: OK. So, if I was representing a buyer in a market, in the Las Vegas market or in appreciating market like Las Vegas, I would kind of turn things around a little bit.

Todd: OK.

Oana: What buyers only do – the first thing they do is a home inspection and then they do an appraisal. Now, if the property is not going to appraise and you’re not going to be able to work it out then you just spent $400 on a home inspection that you can’t use and you spent another $450 on appraisal. That doesn’t make sense.

Todd: OK.

Oana: So, if I was representing a buyer, the first thing I would do is I would get that appraisal ordered. Let’s get that value nailed down. If we could come to terms on that value, then we can deal with the home inspection to satisfy the buyer that yes, they truly want to move forward with this house.

Todd: OK. So you’re saying, put the loan contingency stuff, get it out of the way as fast as possible then deal with the house contingency stuff just to save money.

Oana: Absolutely.

Todd: Because you could spend a thousand bucks on the house doing all your due diligence and then find out you’re not – you don’t have the money out of pocket to pay for it.

Oana: You don’t have the money out of pocket or you’re simply not willing. Like I said, if you’re a buying a house for 200,000 and appraised this for 160, no matter how much you love the house and even if you have the cash to meet the difference, you may not want to at that point.

Todd: Right.

Oana: So then why waste the money on a home inspection upfront? That doesn’t make sense. Deal with the issues that are going to be most pressing and that are going to kill the deal. Not only that, but remember that a home inspection is for the buyer’s benefit is not a seller “honey-do” list.

Todd: Right.

Oana: Most sellers will not make any repairs off a home inspection. They will consider repairs that are an appraisal condition but they will not generally make repairs off the home inspection.

Todd: And that’s probably a whole another video.

Oana: Yes.

Todd: All right. OK. So anyway, I thought I would let Oana share her experience because you have a ton of listings.

Oana: Right.

Todd: Like over 50.

Oana: Yes.

Todd: And most of them are probably, you run into this where the appraisal comes in and it doesn’t meet. Now, you have to negotiate something between the seller and everything and make it all work.

Oana: We do.

Todd: So you have keen practical eye for what’s actually happening.

Oana: Daily.

Todd: Daily. OK. Awesome. So I thought I would share that with you. That’s my update for today and hope to see you on another video. Thanks.