Prices are Up! Appraisals are on the Rise!
The recovery of the real estate market has contributed to a significant number of properties appraising for more than the sales price. There can be unintended consequences accompanied with these higher appraisals. The amount in excess of the sales price can have varied impacts on the transaction.
There are times when the property appraises for $2K-$3K above sales price and it seldom causes much concern in the transaction. However, there are also instances where properties appraise for $10K, $15K or more above the contract price and this is where the potential for issues occur.
Often, very innocently the listing agent inquires about the appraisal, simply to ensure there were no appraisal issues that would hinder the closing or jeopardize the transaction. When the selling agent informs the listing agent that the property appraised for an amount substantially above the contract price, this knowledge has prompted some sellers to want to alter the contract.
Many sellers have seriously considered abandoning the transaction. In this instance, the contract does not allow for the seller to terminate or renegotiate the price without possibly being held in breach of the agreement.
Many selling agents have reported experiencing additional difficulty in getting repairs negotiated, closing date extensions and simply additional unexpected difficulties from the seller after receiving the appraisal. It seems the sellers are digging in their heels and reluctant to cooperate or negotiate other normal components of the agreement. The seller is trying to move onto the next buyer – who will hopefully pay the higher appraised price – by making it difficult to meet required deadlines, etc.
The appraisal report is usually paid for by the buyer and would be property of the buyer. The buyer must consent to the release of the information from his file to the seller or the listing agent. The appraisal report is conducted either as part of the buyer’s Due Diligence or a financing requirement.
Be very careful how you handle this question from the listing agent, “How much did the property appraise for?” The answer can be costly. A very simply answer should be considered, such as “The appraisal has come in and there are no issues with the value.”
If you head down the path of disclosing to the sellers the fact that the property appraised for substantially more, be prepared to meet all deadlines as scheduled because the seller may be looking for the first opportunity to hold your buyer in default and move to a higher buyer.