Appraisal Issues Return

More Locked Barn Doors . . .

Yet another example of "locking the barn door after the horse has escaped" is newly vigilant appraisers.

Anecdotally, I'm hearing of more sales, especially in the upper brackets, that are derailing because of appraisal issues.

In a typical deal, the appraisal occurs several steps along. Before you even get to that point, the Purchase Agreement has to be negotiated, and any Inspection issues surmounted. By then, both the Buyer and Seller (and their agents) have been in regular contact for days, sometimes weeks.

Once the Inspection Contingency has been removed, the focus turns to the Buyer's financing, which in turn hinges on a successful appraisal.

In a rising market, that's seldom an issue.

However, in a falling or flat market, appraisers take their marching orders from defensive lenders who have become much more conservative. As a result, there can be a gap between what appraisers see, and what Buyers and Sellers agree is fair market value.

What then?

Most Financing Contingencies provide that if the Buyer can't get their financing within a specified time period, the deal is automatically cancelled.

So if the Buyer wants out, they can typically get out.

If instead the Buyer and Seller are still committed to the deal, the Buyer can put up more money to cover the appraisal shortfall; the Seller can reduce the price; or both parties can try to challenge the appraisal.