What’s The Deal?

Q: What does it mean when a house has “failed to appraise” when you’re in the process of buying it or making an offer?
–Via the Internet

A: That is not a term that is used. It may have been misquoted. An appraisal is an estimate of a homeowner’s property value. The appraiser, who is licensed by the state under regulations set by the federal government, assesses the fair market value of the property and is often dispatched by the mortgage lending institution, which will structure the loan based on the evaluation. An appraisal can fail to meet the seller’s expectations. For example, a homeowner may want to sell property for $400,000, only to have it appraised at $250,000. Although an appraisal can be subjective, it is based on comparative home prices in the geographic area. There have been cases where banks have refused to send appraisers out to certain neighborhoods. This is called redlining, a discriminatory and illegal practice whereby lending institutions refuse to issue mortgages in certain areas.

According to Matthew King II, owner of MK Capital Resources L.L.C., a mortgage brokerage company in New York City, a seller can challenge an appraisal. “They are more of an art than a science,” he offers. “But if you are going to challenge an evaluation, you have to have supporting documentation of other sales in the neighborhood to support your claim. You do have the option to hold out for your asking price,” he continues. “But banks and lending institutions will usually finance a loan based on what the property is worth. In such a case, the buyer would have to pay the difference out of pocket — which is very unlikely.”

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