Los Altos Real Estate Blog

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Why do appraisals come in low in Silicon Valley?

Many buyers fear appraisals, even in the strong markets around Silicon Valley, because many come in under the contract sales price.  This market has very little inventory and with multiple offers, homes are regularly selling over their asking prices.  How do buyers, sellers, and agents prepare for appraisals and the potential they may come in low?

 

Common Reasons For Low Appraisals

There are many common reasons for low.  An "out of area" appraiser who doesn't understand the local market is the biggest source of frustration. Beyond that, some of the more common reasons for low appraisals include:

  • Lack of knowledge of comparable property condition
  • Use of poorly matched comparable properties
  • Choosing comparable sales too far away from the subject property
  • Not accounting for prevailing market conditions

Choosing poor comparables is a common problem with appraisers. For example, using a comparable property with a 6000 ft.² lot compared to the subject property with a 12,000 ft.² lot is not acceptable. Assuming of course all other variables at the same. The appraiser may not be aware that in a particular market such disparities and lot size can provide significant changes in value. The same can be said for variances in property size, home condition, location, and other factors.

Why do appraisals come in low in Silicon ValleyAnother big factor is not accounting for prevailing market conditions. In some markets were property values are rising at rates approaching 1% per month, a home can see major value changes in a short time. If an appraiser uses a comparable priced at $1.5 million from three months ago in such a market, and identical property would be worth $45,000 more in that market today. Many appraisers fail to accommodate such market conditions.

 

How Do Agents Help Prevent Low Appraisals

An agent can help prepare for an appraisal by gathering suitable comparable sales from the immediate area and providing that information to the appraiser for their review. Providing this information is not meant to steer the appraiser's evaluation but to provide them with the agent's expertise in choosing the most appropriate homes for their analysis.

In addition to providing this information, a good agent will be present when the appraisal is being done to provide any guidance and insight into the property that may not be immediately obvious to the appraiser. Again this information is provided to the appraiser for their benefit. The relationship between the appraiser and the real estate agent should be collaborative.

 

What Can Be Done If The Appraisal Is Low?

There are times when even one well-informed an appraisal will come in low. In these situations the best recourse is to have the agent contact the bank and the appraiser to review the subject comparables used in the appraisal and the analysis method to determine if there are any flaws. Appraisers are human!

In many situations, a single bad comparable can result in a low appraisal. As the agent responsible for the transaction, I will find a more appropriate comparable if possible and provide that information to the appraiser asking them to reevaluate their assessment and to change the final valuation. If the change is appropriate, appraisers will make the adjustment.

In the event that changes to the appraised value cannot be made it will be up to the agents the buyers and sellers to do whatever is possible within the scope of the transaction and the agreement to try to come to a satisfactory resolution. There are many ways to address the these issues within the scope of the purchase price, fees, and other costs. Every situation is different and no one solution will work in all cases.

 

When choosing a REALTOR to buy or sell your home, make sure you're working with someone who understands the appraisal process.  Call me for your real estate needs in Silicon Valley.

 

Take a look at this video of professional REALTORS from around the country discussing why appraisals come in low and what to do about them.

 

 

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 Bryan Robertson, CEO | T: 650.799.9951 | Email: bryan@catarra-re.com | Website: http://www.BryanRobertsonHomes.com |CA BRE# 01191946 | Catarra Real Estate, Inc  | 171 Main St #220 | Los Altos, CA 94022

 

 

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Comment balloon 8 commentsBryan Robertson • January 31 2013 02:55PM
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