How do you deal with appraisal issues when the sale price exceeds the market value?

In my experience, the market is constantly changing and being up to date on your comps both sold, listed and pending is crucial. Also making sure you are realistic in curb appeal and overall condition. Be aware that there is fluctuation on value from a analytical standpoint verses market trends. Remember when you decide to sell it goes from your "home" to a house. You need to take the emotions out of it. Which is not easy to do.

An appraisal is an opinion of value, but also a piece of art. It takes into account a very huge number of variables and hypotheses that combined make sense. Working all together. There are different valuation methods depending on the purpose, so the lender must know each of the standards.

First, ask your realtor to find comparable properties that recently sold, as most appraisals rely on these comparisons. The best comps should be close in location, neighborhood, school district, and property type, sold within the past 90 days. Ensure similarity in property features, like comparing bungalows with bungalows. Avoid comparing your property to significantly different ones, even if they're nearby. Also, be cautious about comparing in a high-crime area to a better neighborhood. Your realtor will help you select suitable comparables.

Keep calm if this arises. Buyers immediately feel nervous, second guess all their choices including you and feel that they were mislead. Stop and address their concerns and feelings first before you discuss options. If you are not in a position to reduce your price offer options with the Buyers, it will be vital in keeping the sale moving forward.

It is important to address any potential appraisal issue when negotiating the contract. A good agent will have an idea as to whether the house has enough support comps to appraise at offer price. They can then negotiate the contract with a type of appraisal gap clause. It may state something like "Buyer to pay up to $20k over appraised value not to exceed purchase price." In California, the C.A.R. residential purchase contract has section addressing this issue with exact language needed.

Explore solutions like a second in charge vendor take-back mortgage, securing your price and gaining returns in the form of interest. When the appraisal is below the sale price, options include lowering it, but it cuts into profit. Asking the buyer to cover the difference increases their risk. A compromise is to split the difference. Offering to pay some closing costs helps the buyer but reduces your net proceeds. Seek appraisals from different lenders as appraisers vary. Negotiate price reductions as a last resort. Each option has trade-offs, so choose based on priorities and buyer flexibility. Consider a price reduction if you can leave items, saving money and hassle on moving for a smoother transition.

Carefully review the appraisal for accuracy. Make a list of any discrepancies you find. Ex. Your house has a pool and storage shed and none of the comps do. The square footage of comps significantly differs from your house, location of comps in different subdivision or area, etc...

Appraisals are subjective assessments. Examine the properties used and adjustments made by the appraiser, then conduct your analysis. Understand their perspective, the reasons behind certain valuations, and recreate a comprehensive analysis. Provide commentary on your methodology, explaining decisions, and raise points of contention with the appraiser's logic. While challenging appraisals can be challenging, feasibility depends on the value gap. Closing a $30-40k gap is realistic, but contesting a gap exceeding $200k is highly challenging.

If negotiations stall, you might consider finding a new buyer. This could mean relisting the property or exploring other avenues. However, this path isn't without its challenges. You might lose the current buyer, extend your time on the market, and incur additional costs. Additionally, there's no guarantee a new buyer won't face the same appraisal issues. Carefully weigh these factors before making a decision.

In my experience this rarely works, having realistic expectation conversations with yourself on value is vitally important. It is expensive to relist or extend the market time. Ripping the band-aid off and realizing how much more you will spend if it is on the market for x more days, or months. If you don't, it will come up again with the next buyer. There are very few Buyers that can pay cash or have a lot of cash to put down, so it significantly reduces the number of potential Buyers you will have.

With all the options available to sell your home out there, you may feel you don't need a Real Estate Agent. If the market is super on fire you may be right. However, having a experienced Agent will negotiate the best price for you and truly look out for your best interest. You sell every 6-9 years, they sell homes every day. They are required to have continuing education and are highly trained to use every tool available to help you sell your home hassle free with no appraisal issues.

Consider getting a pre-appraisal before listing your home. This can give you a realistic idea of your home’s value and help you set a competitive price. I've also found that providing a detailed list of all the improvements and upgrades you’ve made to the property. Include dates and costs to show the added value can avoid appraisal issues.

Highlight Unique Features, make sure the appraiser is aware of any unique features or upgrades that add value to your home. Provide documentation and receipts for any recent renovations or improvements.