My client was ecstatic. After making offers on five different properties, he had finally gotten an acceptance. He had prevailed over three competing offers because his offer was more than $20,000 above the asking price.
I ordered the appraisal as soon as I got the purchase contract from the buyer’s Realtor®. I received it six days later. The appraised value was $20,000 below the price buyer and seller had agreed on. At this point, the buyer could walk away without losing his deposit—or he could ask the seller to reduce his price. This is what he did.
At first, the seller refused. “How did he come up with THAT value?” he demanded. “Mine is the nicest house in the neighborhood!” I explained to him that an appraisal is not a “dartboard” number. It is driven by data.
The appraiser first describes the home (the “Subject”) in a standardized way: square footage, bedrooms and baths, amenities, condition, lot size, etc.). Then he lists other properties in the area that are similar to the Subject (“Comps”) that have sold within six months. He describes the Comps in the same standardized way. He adjusts the value of each one to be the equivalent of the Subject. If one of the comps is 400 square feet larger than the Subject, he will subtract from the selling price of the Comp, using a per-square-foot factor based on area standards. In Dublin, for example, the appraiser used $55 per foot, which reduced the Comp’s price by $22,000. He will make similar adjustments for room count, lot size, condition and other factors.
After adjusting each Comp, the appraiser will calculate a weighted average of the adjusted selling prices to arrive at his “opinion of value.” This is the number the lender will go by. A property two doors down with a high listing price will not affect the appraised value, because sellers can ask whatever they want for their properties.
The seller realized that if he put the property back on the market, he’d be faced with the same problem with a new buyer and new appraisal. He lowered his price and the buyers closed escrow shortly afterwards.
Afterwards, to celebrate, we went to my favorite brewpub for a nice game of darts.