Beware of low appraisals!

Low appraisals continue to be a concern for home sellers.  Three of the last four properties I have sold have had an issue of a low appraisal.  Seems like the market is moving a little too fast for the appraisers in the area.  

What this means for sellers?  Appraisals need to be a major concern when accepting an offer, especially multiple offers.  Be very wary of accepting an offer over list price when it has buyer paid closing costs rolled into the offer.  For example, if a house is listed for $350,000 and a buyer writes an offer for $360,000 with the seller paying $10,000 of the buyer's closing costs.  That is a $350,000 offer that would be essentially list price.  A seller may choose to accept this offer over another offer for $345,000.  What happens when the property appraises for $350,000?  That is essentially list price again.  The buyer wants the seller to still pay for the $10,000 closing costs and then the offer would be a $340,000 offer.  Not a good deal for the seller. 

There are several ways to handle appraisals.  Don't accept any offers where the seller is paying the buyer's closing costs because basically you are inflating the market price.  Or write language into the purchase agreement that states how the situation would be handled if the appraisal comes in less than the purchase price.  

However a seller decides to handle a low appraisal, in this appreciating market where appraisers are looking backwards at sale prices, instead of forward at pending and future sales, appraisals will continue to be an issue and something to be prepared for.