Seller’s Market Expectations
The Market Still Dictates Price
The Seller’s Market expectations by the general public is sometimes that a seller can name their price. This is a myth. While a seller who gets a cash offer with no appraisal might be able to push the envelope, sellers who receive financing offers are governed by the appraisal.
Seller’s Market Expectations
We are seeing this trend recently. With the inventory near or at record lows in the local real estate market, some sellers are wanting to price their home above market value.
We are definitely seeing multiple offers when homes are priced at or just below market value and they do typically drive the price up. However, the problem is when the price is above fair market value.
Fair Market Value is defined as a price a ready and able buyer is willing to pay for a home in a competitive market and that a seller (who is not under duress) is willing to accept. And, that’s where an appraiser comes in.
For buyers who are financing their new mortgage, the appraisers are the ones who decide the homes’ market value. In the housing bust 10 to 12 years ago, home prices spiraled out of control and appraisers supported them. This was a major cause of the Great Recession.
Nowadays, appraisers are governed by more rules and regulations and have to prove how they arrived at the appraised value of a home. When they cannot find supporting sold comparable homes, the subject home does not appraise – jeopardizing the entire transaction when you are typically near the finish line.
To be fair – appraisers are also humans and not perfect. Sometimes they miss things that could affect their market value analysis. Things like major updates or remodeling, square footage, other, better comparable home sales are just some examples.
Not the “Bad Guys”
Appraisers are not the bad guy. They are third party, unbiased professionals tasked solely to ensure the mortgage loan the lender is giving the buyer is collateralized financially by the value of the home.
It can be frustrating to sellers, to say the least, when their home does not appraise at the agreed upon price. But the whole process is designed as a checks and balances so we don’t ever go through a housing bust like we did before.
What Sellers Should Expect from their Agent
Real Estate Agents complete Comparable Market Analysis (CMA) using the same data and sources appraisers use then suggest a listing price for a home.
To push the price beyond this recommendation is to shoot yourself in the foot, most likely. Home buying and selling is not like a garage sale where you price things a little high to leave room to come down or negotiate.
There is way too much information out there and buyers and their agents are savvy. They know what fair market value is, too.
It’s likely, if your home is priced too high, they will never come to see it in the first place. Or, they will react to the overpricing with a “low ball” offer.
Your agent is your guide. They should provide you with a CMA and their knowledge of the local market so that you can make an informed decision when it comes to pricing your home.
Ignoring this information or pricing your home based on anything other than what the market is telling us it’s worth can lead to disappointment and frustration when it’s time for the appraisal.
Options with a Low Appraisal
Again, appraisers are not infallible or perfect. They can make mistakes.
If you and your agent know and can prove there are mistakes or if you have other comparable sold homes that would support the agreed upon price, your agent can challenge the appraisal in hopes the appraiser will adjust their report. No guarantees, but definitely an option in the case of a low appraisal.
Another option is to cancel the contract. Remember, buyers do not have to pay more for a home than the appraisal report supports. They are free to walk away and get their earnest money back in full since Lenders will not finance at a price above the appraised value of the home.
Likewise, sellers do not have to sell their home at less than the agreed upon price. They can also cancel the contract, return the earnest money and go back on the market.
With a low appraisal, buyers and sellers can renegotiate the sales price. Maybe the buyer is willing to bring money to the table and/or the seller may be willing to lower the price some.
Buyers and Sellers could also renegotiate other areas of the purchase contract terms that may help offset a low appraisal, as well. Your agent can help you with this.
Seller’s Market Expectations can be all over the board. The more you know – whether a buyer or a seller – the better off you are!
The bottom line is that working with your agent to price your home carefully and based on what other, comparable homes have sold for, you will be less likely to run into appraisal issues.
If you do run into appraisal problems, try renegotiating the contract with both parties compromising on terms so you end up with a win-win situation!