How to Avoid a Low Home Appraisal

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Thinking of buying or selling a home?

Even when both sides agree on a price, the deal could fall apart thanks to an under-appraisal.

Here’s the increasingly common scenario: The seller lists the house for $325,000, the buyer offers $275,000 and they settle on a $300,000 sales price. A week before closing, the appraisal comes in at $265,000, the maximum upon which the bank or mortgage company is willing to lend.

Who’s going to make up the $35,000 shortfall?

“This has proven to be a fairly significant problem,” says
Walter Molony, senior public affairs specialist with the National Association of Realtors in Washington, D.C. In the aforementioned scenario, the seller — having already come down — typically doesn’t want to drop the price further. The buyer may not have the available cash or may not be willing to pay more than the appraised value.

Consequently, the wheels often fall off the deal.

Bitter pill

Short appraisals typically arise in a declining housing market because of the lack of recent comparable area homes sales, or “comps,” making it difficult for appraisers to determine the current market value of a property. When home sales slow, good comps “age” fast. Add foreclosures and short sales to the mix and appraisals can run all over the map. The Home Valuation Code of Conduct, or HVCC, that went into effect in 200
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Funding Real Estate Deals

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You’ve made the decision to invest in Real Estate and are going through the process of building your team. However, one thing keeps jumping out at you – your bank account doesn’t have enough cash to fund the $125,000 you estimate you need to buy, rehab and hold an investment property you have your eyes on.

Just like the majority of other Real Estate Investors, you need to find a source of funds to complete your deals.

What you need to do is to sit down and think like a lender. 

If you were lending someone money to invest in real estate, what would you be looking for? Remember, you are putting your hard-earned funds at risk if the person you are lending to doesn’t get the job done. Hence, you will want to look at the situation very carefully before agreeing to be their lender. What are your biggest areas of concern? Before reading further, think of at least three questions you would want your borrower to answer.

Banks and private lenders go through the same practice.

Their goal is to generate a return on their capital while minimizing their risk. You need to prove to your lender that the investment you are asking them to fund is virtually risk-free. The riskier the venture, the higher the cost of capital.

Lenders look at the six C’s of Credit:

  1. Character – or perceived integrity
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