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

Comments

This is a great overview of why some of those appraisals come in low. If we believe they are in error we need to pull out all the stops to get another appraisal and provide the ammunition for why the first one was wrong.

Posted by Jane Peters, Connecting you to the L.A. real estate market (Home Jane Realty) over 4 years ago

The tough part about appraisals is that they occur so deep in escrow. People have spend money, prepped for moving, then BAM, transaction goes down the  toilet :(

Posted by Doug Rogers, Your Alexandria Louisiana Agent (Bayou Properties) over 4 years ago

Most times when I have low appraised value it is because the appraiser was from out of the area.

Posted by Kathy Sheehan, Senior Loan Officer (Bay Equity, LLC 770-634-4021) over 4 years ago

We are seeing these low appraised value properties, sometimes it isn't accurately appraised unfortunately.

Posted by Eileen Hsu, LICENSED REAL ESTATE SALESPERSON (Douglas Elliman Real Estate) over 4 years ago

Hi Bryan - I am surprised/amazed when I hear that a listing agent will not meet an appraiser or come to the appointment unprepared(without comps, a list of upgrades vs competition).    It's easier to address the issues face-to-face rather than after the fact.  Of course, in our current market -- we are seeing many buyers removing their appraisal contingency in order to win in a multiple offer situation.    

Posted by Michael Jacobs, Los Angeles Pasadena Area Real Estate 818.516.4393 (Coldwell Banker Residential Brokerage) over 4 years ago

Bryan, this is a real big problem in Silicon Valley right now, and as you said, it is some out of area appraisers that are gumming up the works.

Posted by Gary Frimann, REALTOR and Broker (Eagle Ridge Realty / Signature Homes & Estates) over 4 years ago

Your point #4, not accounting for prevailing market conditions, can often rear its head when the appraiser is from out of the area.

Posted by Lottie Kendall, Serving San Mateo County and San Francisco (Today | Sotheby's International Realty) over 4 years ago

We as sellers agents, always meet the appraiser to ensure all is in proper order so they can do their job correctly.

Posted by Morgan Evans, LICENSED REAL ESTATE SALESPERSON (Douglas Elliman Real Estate) over 4 years ago

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