This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Enjoy!
Question: Given the recent appreciation in real estate values, are you seeing more homes appraise for less than the sale price?
Answer: As we saw in last week’s column, the Arlington real estate market has appreciated rapidly over the last six months which increases the chances that an Appraiser cannot find past sales to support the price the buyer and seller have agreed to, thus increasing the amount of low appraisals in Arlington over the last six months (unfortunately there’s no data to back that up so it’s based on what I’ve seen and heard in the market).
Generally, appraisal values lag behind actual market appreciation by a few months.
Banks Often Require Appraisals
If a buyer is getting a mortgage, the bank almost always requires a third-party appraisal to assess the property’s market value. While one can easily make the argument that the price the buyer and seller have agreed to is the market value, banks don’t look at it that way, hence the third-party appraisal.
Appraisals are largely based on comparable home sales over the last six months. It’s a common myth that Appraisers can only use sales from the last six months, but more recent sales are given more weight than sales 6+ months ago. Ultimately, it’s the Appraisers job to determine the market value of a home using the best available information.
Impact Of A Low Appraisal
If the appraised value comes in at or above the purchase price, all is good in the eyes of the bank so things continue as planned (note: a higher appraised value has no impact on your assessed value for tax purposes).
If the appraised value is lower than the purchase price, the bank usually requires you to negotiate a reduced sale price to match the appraised value or put more money down to cover the difference between the sale price and appraised value, multiplied by your loan-to-value (LTV) ratio. In some cases, you can also change the type of loan you’re using to satisfy the bank.
The easiest way to calculate LTV is subtract your down payment percentage from 100%. In other words, if you’re putting 20% down, your LTV is 80%. If there’s a $10,000 difference between the sale price and appraised value, you’ll usually be required to bring an extra $8,000 ($10,000*.8) to the table.
All of this can change depending on your loan program and down payment, so it’s important to understand the impact a low appraisal will have on your deal prior to making an offer.
Protection Through An Appraisal Contingency
The Appraisal Contingency is one of the “Big Three” contingencies that are common to sales contracts in Northern Virginia. The Home Inspection and Financing Contingencies are the other two.
The Appraisal Contingency gives buyers an out, with a full return of their Deposit, in the event the appraisal is below the sale price and the seller is unwilling to reduce the sale price or the buyer is unwilling to make up the difference or change loan products.
If you include an Appraisal Contingency in your offer, it’s a good idea to ask your lender how long it will take to order and complete the appraisal so you can structure the contingency period around that timeline. Remember, shorter contingency periods are more attractive to sellers and longer periods generally favor the buyer.
When To Waive The Appraisal Contingency
Sometimes waiving an Appraisal Contingency is the right strategic decision when making an offer. If you’re competing against other offers, especially if they’re cash (no appraisal needed), you should talk with your agent and lender about the risk and reward of giving up this protection.
In some cases, sellers will choose an offer with less risk (fewer or no contingencies) instead of the highest offer, especially when the sale price is well above recent comparable sales.
Removing the Appraisal Contingency altogether isn’t your only option either. There are ways to reduce the seller’s risk exposure, thus making your offer more competitive, while also limiting your risk exposure in the event of a really low appraisal.
Disputing A Low Appraisal
If you disagree with the appraised value, ask your lender about the dispute process. First review the appraisal report to understand what sales and details the Appraiser used to determine the value. The best chance you have at getting an appraisal adjustment is to provide the Appraiser with different sales that more accurately represent the subject property’s value, with an explanation.
Managing appraisal risk/contingencies is one of many strategic decisions you’ll make as a buyer or that you’ll have to assess as a seller. Don’t hesitate to reach out to me by email at [email protected] if you have any additional questions!
If you’d like a question answered in my weekly column or to set-up an in-person meeting to discuss local real estate, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at www.EliResidential.com. Call me directly at (703) 539-2529.
Eli Tucker is a licensed Realtor in Virginia, Washington D.C., and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.
It’s Hanukkah — The Jewish festival of Hanukkah started last night. Public menorah lightings are planned in Clarendon and Pentagon City are planned on Sunday and Monday. [ARLnow] Federal Funds…
55+ Single Level Living
Good Thursday evening, Arlington. Let’s take a look back at today’s stories and a look forward to tomorrow’s event calendar. 🕗 News recap The following articles were published earlier today…
A look at the most and least expensive single-family homes sold in Arlington last month, November 2023.
About Latinas Leading Tomorrow (LLT): Latinas Leading Tomorrow is a dynamic 501(c)(3) nonprofit organization dedicated to empowering young Latina women through education, mentorship, and leadership development. We are committed to fostering a community of future leaders who will make a significant impact to the community.
Job Description: We are seeking a passionate and dedicated Part-time Executive Director to lead our organization into its next phase of growth and impact. The ideal candidate will be a visionary leader who can oversee day-to-day operations, drive fundraising efforts, and cultivate relationships with stakeholders. This is a 1099 position; Remote position with ability to attend DMV events; 8-10 hours a week; $35-40/per hour.
Oversee program operations, including educational and community initiatives.
Ensure compliance with legal and regulatory requirements, maintaining trust and accountability.
Develop and execute a strategic vision aligned with our mission and values.
Lead fundraising efforts in partnership with the Board Members.
Cultivate relationships with community partners, schools, educators, and donors.
Demonstrate strong leadership skills, fostering a positive organizational culture.
Communicate effectively with diverse stakeholders and make compelling public presentations.
Promote inclusivity and collaboration throughout the organization.
Children’s Weekday Program (CWP) is a non-profit preschool rooted in a play-based philosophy. We focus on developing a love of learning and exploration, cooperation, empathy, and independence.
Our caring and experienced educators create opportunities for children 16 months to 5 years old to play, learn, and grow in a nurturing environment of child-centered and developmentally appropriate experiences.
Initially established more than 50 years ago in South Arlington, CWP continues to be a lauded program in the Northern Virginia area. We are extremely proud to have been recognized as a Best Preschool in Northern Virginia Magazine for the last 4 years.
Located now in North Arlington at 2666 Military Road, CWP offers a part-time parents day out and preschool program with options to extend care both before and after school. We offer a supportive and inclusive school community for children and parents alike and welcome all families to join our school!
Holiday Art Show featuring artists: Peter Fitzgerald, Claire Plante, Alanna Rivera, and Suzy Scollon. At the Barcroft Community House, 800 South Buchanan St., Arlington, VA. Dec. 8 from, 2 PM to 8 PM and Dec. 9 from 10 AM to