The concept of an appraisal works like this…when a buyer purchases a home and gets a loan, their lender sends out an appraiser to verify the home’s value and make it safe for them to lend you money. In the very hot market we’ve just departed from, it seemed like homes appraised for whatever amount the buyer wanted to pay. For a long time, homes appraised well over comparable sales value. In 2004 I had a listing in San Mateo that we priced at $650,000, and at the time that represented the most money ever paid for a 2 bedroom, 1 bath house in that neighborhood. After receiving multiple offers we ratified with an offer of $778,000. I was secretly worried that these buyers would not be able to get an appraiser to bring that value in…but one did!

Well, that’s no longer the case. A seller can set a price and even if the buyer agrees to it the buyer’s lender will only finance the appraised price…and that may be lower than what was agreed too. What that means is the buyer will need to bring more money to the table or the seller needs to accept a lower offer. If the buyer has a contingency for that appraisal they can cancel the deal and get their money back if the seller won’t agree to negotiate downward.

Truly, it was crazy before and and I’m sure there was quite a bit of pressure placed upon appraisers in the past to bring values in on some of these crazy overbids. I remember in 2000 there were several sales in Palo Alto that came in $1,000,000 over asking…let’s hope they all paid cash! Can you imagine trying to appraise those? I think the return to sanity in the market we’re in is a good thing.

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