Believe it or not, when it comes to determining the value of a property it’s as much art as it is science.
Here’s the scenario: you have your house for sale. Someone likes it and has made an offer you have accepted. Sometime during the next 30 days someone is going to come by to look at your castle to see if it’s really worth the price you and the buyer have agreed on. That nosey person doesn’t work for the buyer- not directly, anyway. He works for the mortgage company. And that company wants to know more about the property they are about to finance for your buyer. While the nosey person (hereafter referred to as “appraiser”) is there he or she will take a lot of pictures, make a lot of notes, catalog anything that looks out of the ordinary, such as that hole you made in the wall after the Broncos lost the Superbowl, and then bid you a cheery “good day”. Now you wait.
Generally it can take from three to ten days for the appraiser to get back to the bank with the results. During that time he’s looking at several things. One of those things is the area where you live. He’ll check out the other houses for sale to see if your price falls in line with those. And she’ll look at the properties that have sold in that area over the last six to twelve months and see what the average prices were for those sales, too. Some time will also be spent checking to see if anyone else sold their house with a hole in the wall- or comparable damage.
You’ll probably be surprised by the findings. To some extent it may surprise the buyer as well, because even though the person who came by your house was called an “appraiser” she’s not really there to give you or the buyer a hard and fast assessment of what the house is really worth in dollars and cents. Remember, she works for the bank. What the bank wants to know is whether or not the house is a good piece of collateral for the money that is being loaned. That is a pass/fail question which the appraiser will answer not with “yes” or “no”, but with a number. If the number is higher than the sale price of the house the answer is yes. If it’s lower the answer is no.
Most often in residential Real Estate deals, if I’ve done my job correctly when I listed the house for sale the answer is yes. But the number given is very rarely much higher than the sale price. Sometimes it’s exactly the same as the sale price. Even if the buyers have been able to negotiate a sweet deal for themselves the result will still be very close to the actual sale price on the contract. If you’re wondering how that happens, it’s because the appraiser goes into the research knowing what the sale price of the house is before he ever shows up on your porch. Remember, she’s not being paid to tell you how much your house is worth. She’s only there to affirm the sale price for the bank. If you want an appraiser’s opinion about the value of your house you’ll have to hire your own appraiser. But if you do that be aware the bank still won’t care what your appraisal says. They will still send their own appraiser to your house before it closes.
So what happens if the appraisal comes in below the sale price? In Oklahoma that immediately voids the sales contract. To rectify that problem you may have to lower your asking price to match the appraisal. Another less plausible option would be for the buyer to pay the difference between the sale price and the appraisal value to cover what the bank won’t finance. The buyer will really have to be in love with your house to do that. Or you can put your house back on the market and wait for another buyer. Another buyer will bring another lender. Another lender will send another appraiser who may come up with a different number altogether.
Keep in mind, the goal is to sell your house. If you keep that in front of you wading through these little mazes between contract and close will be easier to manage. And it will be easier still if you’ll give me a call at 918-809-5199 when you’re ready to move!