If you've ever been through the process, you know how stressful selling your home can be.
One hurdle home sellers and buyers must overcome is the home appraisal, which gives the value on your house and allows the bank to lend you the money to buy it. But home appraisals can hold back home sales when they come in low. And it's such a problem, that nationwide 65 percent of realtors say they've experienced it.
Jodi Brashear moved to a new home in June. But at one point, last spring, she didn't know if that would be possible.
Brashear's west side home was appraised in 2009 at $292,000. It was listed in 2012 for $289,000. But when it was appraised it came in at $269,000; a $20,000 difference.
"We were actually really shocked and unfortunately the appraisal came in just about a week before closing, so there was a six week gap where everyone thinks everything is moving along and at the end of the day here we come down with a shortfall," Brashear said.
The loan wouldn't cover the difference and the buyers didn't have that kind of cash.
"It was frustrating and it was nerve wracking, not only for us, but for the realtor, the banker and the potential buyers, Brashear said.
"It's not fun knowing you're going to impact a sale, a refinance of a property for individuals," Brian Schmidt of Ace Appraisal said.
Schmidt has been conducting home appraisals for 23 years. He says one of the reasons more appraisals are falling short of the asking price is because a new stringent federal regulations in the housing industry after the market crashed.
"There were things going on out there. It wasn't just in the appraisal process; it was in the lending process; it was in the realtor part of the process. There were things getting done that needed to be looked at and the pendulum was probably way too far over here and now it's swung a lot further the other way. We're paying the price now with what happened three to four years ago," Schmidt said.
And while Schmidt says locally only three to five percent of appraisals are coming in low, almost every realtor we spoke with said it's happened with at least one of their sales and sometimes much more than that, in the last few years.
"Sometimes the deal just falls apart. There's too much of a gap. The seller can't drop that much and still pay off their loan and the buyers are coming in without a lot of cash," Realtor Matt Larson of the Realtor Association of the Sioux Empire said.
The biggest thing keeping appraisals low is that appraisers, like Schmidt, must go off of comparable sales, or comps, from the last six months and that can be tough to do when the market is going up quickly, like it is in Sioux Falls.
"What it does is it takes comparables away that you'd like to use, but they're saying, 'No we don't want those in the report,' and some of these price ranges and market areas you only have so many comps or sales. And if you can't use them you're really at a disadvantage and then you start using older stuff, lower priced stuff that creates problems," Schmidt said.
And that's especially the case for new construction, where virtually no spec homes were built in the recession.
"There were homes being built, but those were custom homes; so we don't have the data on those as we would a spec home on the market," Larson said.
With Brashear's low appraisal, the deal fell through. Fortunately for her, a couple of weeks later a cash buyer showed up and she was able to get close to the asking price.
"At that point in time we had actually moved out of the home since it had sold, financially there were a couple extra mortgage payments someone wasn't expecting, but for us it did work out," Brashear said.
But that doesn't happen very often. In other cases, where a bank loan is involved, there are solutions when the appraisal comes in below the asking price.
"If the seller has some equity and they're very motivated to move, they can sell it for the appraised price, even if it is lower than agreed upon sale price. Or the buyer, if they really want that home and see a reason why it didn't appraise as high, maybe there wasn't the comparables they wanted, they can bring a little more cash to the table in order for it to close," Schmidt said.
And getting the comparables before listing a home or making an offer, to insure it's priced right, is another important step to avoid the problem altogether.
Low appraisals don't just affect home sales, they also affect refinancing. If you feel your home is undervalued in an appraisal you can challenge the paperwork, or request a second appraisal.