Back in the day, the main functions of a real estate agent were to insert the house on the MLS (for sellers) or to find the house (for buyers). Agents are still doing that today, but the good ones are doing much more.  


When you hire an agent, you’re paying for negotiation skills, professional marketing, analyses of market value, contract management and due diligent support. Look for experience and skill in these areas. Look for a competitive advantage. You’re paying for it, after all. Shouldn’t you get your money’s worth?


This post is about low appraisals and how a good agent can use one to your advantage in negotiation. It’s the first in a series called What Your Real Estate Agent Isn’t Telling You (WYAITY).


Low Appraisals 

We’ve been in a bull market for over two years. Inventory has shrunk and prices have risen quickly.  

In a low volume market like Boulder, appraisal values lag behind market prices because there just isn’t enough market data (comps) available to support the contract price. There’s a strong chance that you’ll be dealing with a low appraisal. 


It gets worse. In a typical deal, the appraisal isn’t ordered until a few weeks after being under contract.   Smart buyer’s agents will only recommend ordering the appraisal after you’re through the inspection process to maintain negotiation leverage over inspection objection items. 


As a seller, this means you may have resolved everything inspection related and still have the deal fall apart on appraisal. Meanwhile you’ve wasted 3-4 weeks of market time dancing with a buyer who is now holding you hostage to a low appraisal. 


As a buyer, you thought this was a done deal. You’ve hired movers, you’re literally days away from closing but you’ve just learned that you’ll have to increase your down payment if you still want the house. Do you even have the cash? You’re also wondering if you’re overpaying.


The Opportunity
Whether you’re the buyer or the seller, there’s a way to use a likely low appraisal to your advantage. Remember – any challenge is really an opportunity for your agent to add value.   

Multiple offers are common in this market. The more desirable the property, the more likely the listing agent will be managing multiple bids.  
Here’s what you need to know: Certain contingencies can be neutralized by skillfully leveraging one offer against the other (listing agent) or by adding additional provisions that make your offer more desirable (buyer’s agent). 


If you’re the seller, you can ask your listing agent to counter with the following additional provision: “In the the event of an appraisal value below the Purchase Price, buyer to increase their down payment.  Seller will not reduce the Purchase Price.”    


If you’re buying, your agent can place the same provision in your offer. It will be viewed as a competitive advantage over other similar offers. The key to accepting the risk is to feel confident about the market value of the property. A good agent will help you with that. 


Imagine a seller reviewing several offers. All are within a few thousand dollars of each other, all are putting down 20%, all have similar contingencies – except one has pre-negotiated the low appraisal. Which offer would you choose?


A Competitive Advantage

Multiple offer scenarios are an opportunity to use negotiation skills to your advantage. When you’re selecting an agent, there is no substitute for responsiveness, experience and skill.   


There are other ways to make an offer more attractive including escalation clauses, variable commissions, and inspections. I’ll be writing about those in future posts in the series, What Your Agent Isn’t Telling You (WYAITY). Of course, I won’t be giving away all my secrets to maintain my competitive advantage for my clients. If you want me as your Realtor, call me at 303.746.6896.   Here’s my bio.

I should also mention that Realty Unique is hiring. If you’re an agent looking to join a firm where your skills and experience are valued, contact me.  
note: The additional provision above is not Colorado Real Estate Commission Approved nor is it legal advice. Use it at your own risk. 

image:  Jason Tester, Banamine
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