Expert: Karyn Foley - 3/1/2010

Question
QUESTION: Hi Karyn,  I just accepted an offer on my house in Madison, WI. I'd like to know, in general, how soon do appraisals take place after a contract is in agreement?

Thanks!
Matt

ANSWER: Dear Matt:
 Congratulations on selling your home!  It is a difficult market, and you probably had your home priced correctly, and I hope your transaction is successful all the way through.
 Your contract - in writing, I hope! - should have the period of time in which your buyer has to apply for the loan and receives loan approval.  This is usually done during the contingency periods outlined on probably the first page of the offer.  Your buyer has to provide complete documentation to the lender, will have credit checked, debts and assets evaluated, salary verified, and so forth.  During the first part of this process, the appraiser is called out to ascertain that the property is worth the amount of money that the loan will be from the bank.  In today's world, this process can take at least three weeks or longer and should be accomplished within the contingency alloted for it within your contract.
 If you had representation by an agent/broker, that person should be able to go over that part of the contract with you.  In the interim, you should not proclaim your property is "sold"; it should remain on the market for back up offers.  You must be up front with the buyers at large, and not hide the fact that a contract has already been entered into with another buyer.  This way, you appear as honest and reasonable, and the buyers will be there for you in the event the first buyer falls out.  If your home is registered in the local multiple listing service, they have the appropriate wording for this type of situation.  If you sold the property on your own, there are usually sign riders that say "in escrow", "back up offers accepted", "in contract", and so forth, depending on what your area uses to inform the public.  Sunday open houses are not a good idea, as it may give an unrealistic perception.
 If your buyer does not receive full loan approval within the specified period, then you have to decide if you wish to exercise your right to cancel the contract (if that is written in your contract) or to extend - again in writing! - the loan contingency.  YOu should base any extension upon how sincerely your buyer is seeking the loan.  This can be looked into by your agent/broker.  A short extension is reasonable if you know (not think) that your buyer has good credit, good assets, and a good job.  
 The appraiser works for the buyer, and thus you will not be told how much your home appraised for.  You will be informed, however, if it did not appraise for as much as it was needed in order for your buyer to obtain the loan under the conditions of the contract.  If that happens, write to me again for your options.
 Good luck and let me know what happens.
Karyn Foley

---------- FOLLOW-UP ----------

QUESTION: Thank you for the very quick reply. I am selling on my own, which I have done before, but that was in a good market when homes would easily appraise for more than the purchase price. I have one more quick question on the appraisal: The offer I accepted includes a $4,000 closing credit. The purchase price is $203,500, but when the credit is taken into account, we are actually selling for $197,500. $197,000 seems very close to the market value of our house, but I could see $203,500 being a little high. How does a bank look at this situation when comparing to the appraisal value of the home?  Thanks again! - Matt

Answer
Dear Matt, all of that information should be made available to the lender/appraiser.  There is a vendor/vendee expectation of up front honest and knowledge of all facts, and it will hold you in good stead with all parties.  The contract will have that information on it, I am certain (it does, doesn't it?) and the lender is entitled to a copy of the contract in order to know all the facts and take everything into account.   Please keep in mind, both you and your buyer, if the appraisal comes in higher than the sales price that is good and reassuring for the buyer, but it does not mean you were taken advantage of.  It is a value opinion, and you should just be pleased that your buyer is probably pleased about t, and you should just be glad that it sold.  If it comes in just a little lower, then the buyer should know that it may still be worth a little more - perhaps as much as he/she paid for it - but that appraisers are becoming more cautious.  However, in order to get the loan, the buyer may have to pay a little more money up front to get the loan; increase the down payment or obtain a higher loan if possible.  You may also have to come down a bit in price, too, just to make the deal.  I think if all principals are really eager and want to make the deal, a deal can be made.  But please keep in mind that the appraisers are not as lenient as in the past.  It might be a good idea if you could collect a group of homes that have already sold - and closed - and that have sold at or above your home price, and present it to the appraiser.  The appraiser will no doubt have access to the multiple listing service for his/her own comparable information, and also to information on homes that did not go through agents/brokers such as yours.  Homes that applied for refinancing do not qualify as a comparable.  Alas, in this real estate climate, you cannot forecast what will happen.  Karyn Foley