By Tracey Davies, Sales Representative, ABR, CRA

Re/Max Centre City Realty Inc & Tri County Appraisal

January 6, 2017 

So, you have an accepted offer on your house and in your mind it is

SOLD!

Woot Woot. Good Days Ahead!!!.

 

 

However the offer you accepted is conditional on financing. That condition gives the buyer a few days to make sure the bank is going to lend them the money.

 

The buyer said they were preapproved?

The preapproval given to buyers from many banks is a preliminary tool to help buyers decide what price range they can shop in. However, most often, the questions asked by the lender at the preapproval stage are not detailed enough to get a true picture of the financial situation of the buyer. The buyer only hears the bank say "yes, you are preapproved to borrow $275,000". But the banker also says a lot of other things like:

 

subject to a credit application, employment verification, and appraisal

The buyer is excited and happily takes their accepted agreement of purchase and sale into their bank and they are anticipating that the bank will simply have them sign a couple forms and write them a cheque for $275,000. But the bankers work has just begun.

An Appraiser Calls You

 

The seller or buyer gets the call from an appraisal company requesting an inspection appointment for the buyers mortgage application. The consumers first step should be to ask the appraiser to book the appointment with their Realtor. This will give your Realtor the opportunity to sell the highlights of the property to the appraiser. Ideally, the Realtor can be at the property for the appraisal and provide details that an appraiser might need to do the work efficiently and accurately.

The Realtor will be able to point out features that might not be obvious, like neighbourhood attributes, school boundaries, hidden upgrades, marketing history, etc. The best opportunity for a smooth transaction at the appraisal stage is for the Realtor and Appraiser to have a short discussion on the marketing and features of the property.

Get the Realtor and Appraiser in the Same Room!

 

Too often, the Realtor does not take this perfect opportunity to communicate what is best about the property. Depending on the financial situation of the buyer, this could be the most important sales pitch your Realtor needs to pitch.

Why does the bank needs an appraisal of the home?

 

The buyers banker wants to lend the money and wants to have a happy client but the banker has to get permission to proceed from their underwriting department. The underwriting department will protect the bank from lending more money than they should. Part of this review will be based on an independent appraisal. The bank wants a second opinion from an appraiser they trust.

 

What happens if the accepted offer is higher than the appraised value?

 

The only purpose of the appraisal is for the bank to know how much money they can lend to the borrower. If the buyer has a large down payment and the buyer was applying for a small mortgage then the appraised value being lower than the sale price will not become an issue.

Congratulations! Multiple Offers!

You got more for the house than the appraised value!

Win! Win! Win!..... but will the deal close????

 

Before accepting the highest offer, make sure you know details of the buyers financial situation. It does not cost a buyer anything to over shoot on an offer because they can back out if the bank does not lend the money. In multiple offers and prices exceeding the list price, it is critical to a successful sale to know that the buyer has a very large amount of cash. If the buyer was borrowing the maximum permitted, and has very little cash, and the appraised value is less than the sale price, then the bank will have to tell their borrower that they can not lend him all that they have requested.

The buyer finds out their preapproval was subject to appraisal

 

The buyer then has to make some decisions. The buyer can borrow less and pay a larger portion in cash, the buyer can decide to cancel the deal, or the buyer can ask the seller to give them a second mortgage for the shortfall, the buyer and seller can agree to reduce the sale price by some or all of the shortfall, or....can something be done to change the appraised value estimate?

"The Appraiser Killed The Deal *&&*$#@%!!!"

 

The seller will always want a second opinion or reconsideration if the bank tells the buyer that the appraisal is the reason the deal is not going together. When a buyer finds out the appraised value is less than the sale price the buyer will want the seller to reduce the price. The buyer will begin to feel they have been taken advantage of and may not be interested in proceeding with the purchase. The buyer and seller may have to revisit the negotiations to see if both sides still agree on the price. If both sides think the appraisal was lower than it should be, the buyers lender can ask for a reconsideration or review.

The appraiser might be asked to review or reconsider

 

With your Realtors help and experience with the market and discussion with the banker regarding potential areas where the appraiser may have missed value added features, the appraiser may be asked to reconsider a certain point in the report that affects the value. Perhaps a neighbourhood property sold that wasn't in the report or perhaps the square footage of the house was measured incorrectly. The Realtor may be able to talk to the appraiser about the marketing of the property, previous offers rejected, or the other properties that the buyer looked at before choosing this property. An experienced Realtor will keep the lines of communication open with the appraiser and will not coerce the appraiser but will openly discuss the market.

SOLD

Realtors are not just knowledgeable about the market. They have spent years building relationships with the other professionals in the industry and have seen and professionally handled all the missteps that happen with every transaction. Choosing a Realtor to represent you in the sale or purchase of your home is the best way to keep the deal together through to the closing date.

By Tracey Davies, Sales Representative, ABR, CRA

Re/Max Centre City Realty Inc & Tri County Appraisal

January 6, 2017 

Tracey Davies