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I recently had a client ask "What do you do when your Michigan home does not appraise"

First let's go over what I mean by "when your Michigan homes does not appraise. Let's use as an example that you have a purchase agreement for $400,000. If a buyer is getting a mortgage the bank will want to see that the home is worth $400,000. So the bank makes the buyer pay for an appraisal. The buyer, the bank, nor the real estate agent has no influence over the appraiser. The bank has a pool of local appraisers and they assign the appraisal work out. The bank has no incentive to have a low appraisal. They want to do the loan. So the appraiser does their work and just gives their opinion of what your home is worth.

There lies the problem. If you hire 3 different appraisers you could get three different values. I have seen that happen before. Remember an appraisal is just one licensed appraiser using their profession knowledge and education to give "their" opinion of value. So when selling your Michigan home you might have an appraisal issue, where the house does not appraise for the purchase price.  The appraised value comes in low. So what happens then?

The buyer and/or the loan officer will let the buyer's agent know that the home did not appraise and will tell the agent what it did appraise for. The seller's agent usually asks for the appraisal to review it for mistakes.

At this point if there are mistakes you can ask to rebutt the appraisal to the appraiser. Basically what happens is the buyer's or seller's agent list all the mistakes on the appraisal. The bank sends it back to the appraiser to either correct or say the appraisal is fine. 99% of the time the appraiser refuses to make a correction. After all you are doubting their work and correcting them. Of course they are going to say they are not wrong. So the bank and the appraiser say the appraisal is correct. So what options do you the seller have after the appraiser says they are not correcting the appraisal.

  1. The seller can refuse to lower to lower the price and then can void the deal if the buyer is not willing to pay the extra money that the bank wants.
  2. The buyer can bring the shortage between the amount the bank will lend and the purchase price.
  3. The buyer and seller can agree to extend the loan and have the buyer start over at a different bank.
  4. The seller lowers the price to the appraised price.

Let me give you a scenario of a Michigan home that we recently had issues with.   The contract sales price was $400,000.  The buyer was putting 20% down ($80,000 down and a $320,000 mortgage). The house only appraised at $360,000. It was a solid or good appraisal with no mistakes. My seller wanted to know why the buyer couldn’t just come to the table with the extra money.  He assumed nothing really had changed.  He thought the buyer just needed the same $80,000.

But that was not true.  Assuming the buyer is not changing the loan terms this is what would happen.  The issue is the bank will only mortgage 80% of the $360,000.  So the buyer would only get a loan of $288,000.  The buyer would then need $112,000 not the original $80,000. An extra $32,000.  So the buyer would have to come up with a lot of money.  Money they may not have.

One of the biggest issues buyers will not come to the table with the extra money is simple. My bank says the house is not worth the price. It is hard to fight that battle. Why would the buyer over pay for a house when their bank is telling them it is worth only this much? However if it is a hot market the buyers may come to the table with the money otherwise they might lose the house.

There are many variables that come into play when a Michigan home does not appraise. Whether the buyer has the money, was it a good appraisal, and what type of Michigan real estate market is it are just a few of the variables.  If it was a buyer's market the seller may lower the price in order to get the home sold. Now, it is the time you will be thankful that you have a good realtor like me that negotiates well.

So the buyers not having the extra cash is one reason many sellers have to come down in price to make the sale go thru.   Or the sale is dead. The bank had an appraisal done by a licensed appraiser.  The bank says it is worth $360,000 so would you pay $400,000 for it? Sometimes you have to put yourself in the buyer's shoes if the appraisal was a solid appraisal.

I hope this gives you, insight into the selling process and what may happen when the house does not appraise.  At least you have the reason the buyer is asking you to lower the price of your Michigan home and what your options are when your home does not appraise.

I hope you enjoyed my latest series on home selling tips.  My goal with this series is to help you understand the potential issues and realize that it is not just a one time fluke happening only to you.  I see some of these issues over and over through out the years.  It is my job as your real estate agent to help you understand all your options and help you make an informed decisions of what to do.

Russ Ravary