The Skinny on Appraisals in 2012-Chicago Real Estate

Many have asked me what are appraisals and how do they work regarding buying or selling a home.  Well, the definition of an appraisal is: the process of valuing real property. The value usually sought is the property’s Market Value. Appraisals are needed because compared to, say, corporate stock, real estate transactions can occur infrequently. Not only that, but every property is different from the next, a factor that doesn’t affect assets like corporate stock. Furthermore, all properties differ from each other in their location – which is an important factor in their value.

So let’s jump to a real-life scenario..imagine that you’ve found a home you really love. You and the seller have come to terms on a fair market value. You’ve had the property inspected from top to bottom and reviewed all of the seller’s disclosures. You’ve submitted every last piece of financial data to your mortgage broker, and you’re already picking out new paint colors because you think it’s a done deal.

Then, you get an unexpected call from your mortgage broker, saying the property didn’t appraise at or even near the fair market value. This turn of events could easily scare a first-time buyer from going through with the purchase. For a more experienced buyer or seller, it becomes, at a minimum, a major kink in the process.

What Buyers and Sellers can do:

Buyers: Most banks have a process by which you can dispute an appraisal if it comes to that. This generally requires the buyer or their agent to supply other comparable sales and explanations as to why they think the appraiser’s value is off. The review takes some time and can go either way. If it fails, you may or may not have options. The other options:

• If both parties still want to move ahead, the best plan is to extend all time frames and switch to a new lender.
• Another option is to reduce the purchase price, if both parties agree.
• The final option, depending on the deal, is for the buyer to bring more money to close.

It makes the most sense for all parties to work together to keep the deal going.

Sellers:If you’re a seller or a listing agent and you get a call from an appraiser to set up the appraisal appointment and they have an out-of-town area code, that might be a red flag. Ask them on the phone if they’re familiar with the area, if they’re a member of the local MLS, and how many appraisals they’ve done in the area in the past six months. If you feel the appraiser isn’t experienced, you can ask for another.

Also, come to the appraisal prepped with knowledge of recent comparable sales.  If you, as the seller or listing agent, are active in the local market, you can shed light on certain comparable sales for the appraiser. The listing agent and the seller have likely been physically inside all of the most recent sales, while the appraiser has not. You might point out that one comp didn’t have a…..CONTINUED