Appraisals

Seller

When working with the seller your job as the listing agent is to help ensure the appraisal comes back as high as possible. To do this I recommend that you physically go to the appraisal with comps showing your value in hand. Chat with the appraiser. A good conversation can go a long way.

Should the appraisal come back lower then the contract price there are a few things that can happen.

1. The buyer can come up with the difference (you can negotiate an agreeable new price point OR your client can hold firm and say “we agreed to a price, we are sticking to it. If your client goes with the “we are sticking to it” method remember that the buyer does have the right to cancel if appraisal comes in low (unless their is an appraisal gap addendum “Appraisal Gap Addendums explained below.”

2. The seller can agree to sell for the new appraised for price.

3. You can talk to the lender and broker and ask for a new appraisal. Sometimes this works out, sometimes it does not. It is a gamble.

One way to help protect the seller in this situation is an appraisal gap clause. This states that should the appraisal come in low, the buyer will make up the difference to a certain agreed to point. For example, you may have a contract for $100,000. If the appraisal comes back at $90,000 and you had the Appraisal Gap Clause in the contract which states the buyer will come up with the difference up to $15,000, the buyer would have to come with the $10,000 difference. However, if the appraisal came back at $80,000 the buyer would only need to come up to $95,000 as the clause states up to a $15,000 difference.

Buyers

When working with the buyer, typically an appraisal is scheduled through the listing agent. I generally ask to be looped in the process so I can be sure that the listing agent is going to show up. If not, I like to be there if possible so I can get a feel for the appraisal and offer any opinions I can.

Should the appraisal come back low, the buyer has a few options.

1. In most contracts (unless specifically mentioned otherwise) if an appraisal comes in low, the buyer has the right to cancel.

2. You can try to renegotiate a price. Your client can say they are only willing to pay appraised value or only go to a certain point, and see if you can get a deal.

In some situations it may seem odd, but if your client is very interested in a property or you are in a sellers market with multiple offer situations, you may consider these options.

1. Your client can just pay the appraised value.

2. You can ask the lender for a second appraisal because you don’t agree with the first.

3. You can add an appraisal gap clause. This states that should the appraisal come in low, the buyer will make up the difference to a certain agreed to point. For example, you may have a contract for $100,000. If the appraisal comes back at $90,000 and you had the Appraisal Gap Clause in the contract which states the buyer will come up with the difference up to $15,000, the buyer would have to come with the $10,000 difference. However, if the appraisal came back at $80,000 the buyer would only need to come up to $95,000 as the clause states up to a $15,000 difference.