Do You Really Have to Sell Your Home Twice?

Do you really have to sell your home twice? The short answer is “yes” – and it’s important to realize that the second sale might be even trickier than the first.

Here’s the deal.

The Second Sale: The Bank Appraisal

When you sell a home, it helps to think of the process as a double-sale from the very start. On the one hand, of course, you have the buyer, the person who will be taking over possession of the property from you. Behind this buyer is the second party, the mortgage lender or bank, which will grant the purchaser a mortgage in order to actually buy the home.

Whereas the buyer is typically looking for a new place to live, the bank/lender is only looking to make a secure investment. They don’t want to get stuck with a property that is worth less than they have loaned against it during the mortgage process, after all – that’s just not good business.

So, to protect themselves, banks require an appraisal to determine the value of a property – and this step can present a set of fresh challenges for buyers and sellers alike.

The Problem with a Low Appraisal

Perhaps the most common issue that sellers face when it comes to this second sale, the bank appraisal, is that there is often a significant gap between homeowners’ expectations and appraisers’ evaluations.

The current market is marked by low inventory coupled with high demand, conditions which drive up housing prices. But as list prices go up (and up, and up), it becomes far more likely that appraised values will come up “short,” or below sellers’ perceived market values.

For a gauge on this, we can look to the Home Price Perception Index (HPPI), measured by Quicken Loans. The HPPI measures the discrepancy between the valuations of homeowners and those who appraise their properties – and there is often a pretty notable difference between these two parties.

According to HPPI data from January 2018, for example, appraiser opinions in the Midwest came in lower than homeowner perceptions by .71%. This difference was even wider in the Chicago metropolitan area, where appraised value typically came in at 1.36% lower than homeowner perceptions.

For reference, here’s what the national HPPI looked like throughout 2017, courtesy of Keeping Current Matters:

A graph illustrating appraiser home value estimates versus homeowners

So, what exactly is the problem with a low appraisal? The big issue is that, when the bank appraisal differs significantly from the list price, it can become more difficult for the buyer to secure a loan, and actually complete the sale.

Plenty of contracts fall through because of issues that arise during the appraisal process. For one thing, many buyers become suspicious when the appraisal differs significantly from the list price, dampening their enthusiasm for the property or even encouraging them to try to head back to the negotiating table.

In other cases, buyers who still wish to close may have to lower the amount of their down payment, restructure their loan, or dispute the appraisal – all of which can take time, and leave sellers twisting in the wind. Still other buyers will have no other option but kill the deal using a mortgage contingency, putting the seller right back where they started.

Price Your Home Correctly From the Beginning

With all of this being said, it’s important to realize that every appraisal will be different, just as every home is different. A wide variety of factors go into assessing the value of a home, including the location, size, and history of the property.

It’s important to work with a real estate team that recognizes the difficulty of the secondary sale, and takes care to set you up for success from the very start!

The right real estate professional will have a thorough understanding of your property and the unique market conditions for your neighborhood, and may be able to help offer important context and information to the appraiser, educating them so that there’s less of a chance that they stick you with a “bad” appraisal.

If you’re planning to enter the market in the near future, working with a real estate team that understands how the appraisal process works will be key to ensuring your peace of mind – and your successful sale – as fresh obstacles crop up.

Curious about how the Real Group team can help improve the appraisal process for sellers? Drop us a line today to get the conversation started!

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Chicago, IL 60614

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