Before you sign a contract to sell your home, check to see if 
the purchase offer depends on financing. Look for a clause 
witch states that the offer is contingent on your home's 
appraisal done by the buyer's mortgage lender. This clause 
causes many home sellers to lose the sale or to lower the 
sales price later.

Appraisers draw on comparable market sales (comps) of local 
properties sold within the last six months to value your 
home. With today’s rapidly rising seller’s market, six-month-
old information is ancient history. Appraised value does not 
always equal the true market value, or what the home will 
sell for on the open market.

Realtors will give you a comparative market analysis, an 
informal estimate of market value based on comparable sales. 
Lenders, on the other hand, will use the appraised value to 
determine a new mortgage amount. Some lenders require that 
the stated property value covers the mortgage amount plus 
their selling costs in case of foreclosure. For this reason, 
a sale may fall through if a home sells on the open market 
for more than the appraised value, which often happens in 
bidding wars over hot property.

We learned the importance of securing a sufficiently high 
appraisal when we sold a rental property in Lake Elsinore, 
California. We listed the house for $234,700 on Friday. By 
Monday morning, we had three offers: $245,000, $255,000, and 
$260,000. We accepted the one for $255,000 because the buyers 
had $80,000 down, reassuring us that they had sufficient 
funds.

As usual, the lender sent an appraiser to review the 
property. This busy appraiser didn't take the time to view 
all the upgrades we put into the custom-built home. Even 
worse, he used only comps from the local one-mile radius. 
Because this home is close to a shopping district, there were 
not many homes sold in this limited area during the six-month 
period.

The appraiser used comps six months old; during this time 
housing costs in Southern California appreciated around 
thirty percent. Sales from six months previous should have 
gone up in value by $30,000 on a $200,000 home. This means 
that our home should have been worth $250,000 to $260,000, 
especially since buyers are willing to pay this price on the 
open market. To increase the value of this home, at the time 
there was not another three bedroom home listed in the area 
for under $250,000 (excluding manufactured homes). However, 
the appraiser valued our home for only $230,000 -- and we 
would have lost the sale if the offer did not include a 
sufficient down payment.

Because a low appraisal can kill your sale, finding a buyer 
with a large down payment provides you with a safety net. You 
may also choose a buyer with strong credit who doesn't have 
to put a large percentage down. If you think that your home’s 
appraisal could become a problem, make sure you don't include 
a clause in your sale’s contract which states "subject to 
appraisal."


How to Avoid Low Appraisals

Hire your own appraiser before the sale. Then ask your 
buyer’s or lender’s appraiser to review your appraisal. 

Retain the option to approve your buyer’s mortgage lender. 
Make sure that the buyer doesn't use a lender with a history 
of deliberately underestimating property values. A good real 
estate agent should know which lenders routinely under value 
homes.

Keep records of repairs and upgrades, including costs. 
Take "before" and "after" photographs. Create an organized 
journal with a listing of expenses and include pictures to 
show to the appraiser during the appraisal appointment. Stage 
your home for the appraiser like you do for buyers.

Secure your own property comparables to make sure the 
appraiser uses complete information. Call real estate agents 
with homes in escrow and get the sales prices. Make a list of 
these properties with the agent’s phone numbers and give it 
to the appraiser.


What to Do When Your Selling Appraisal Comes in Too Low:

1. Ask for another appraisal.

2. Protest the appraisal with documentation of your upgraded 
   expenses.

3. Have the buyers make a larger down payment.

When you sell or buy real estate, remember that the certified 
appraisal is just one person’s opinion of the value of your 
home. The opinion that counts for you is the buyer’s: you 
want to be sure the buyer values your home above all others. 

Jeanette Fisher, author of Sell Your Home for Top Dollar--
FAST, Staging Houses, Doghouse to Dollhouse for Dollars: 
Using Design Psychology to Increase Real Estate Profits, and 
other real estate and interior design books, teaches Design 
Psychology and real estate investing. For information on 
Design Psychology, visit: http://designpsych.com/.  
For help selling houses, articles, and home staging tips, see 
http://www.sellfast.info/.