You have probably heard this by now, but the Atlanta market, in most areas, is rapidly becoming a SELLER’S market again! We have more buyers than we have good, well-priced inventory, and as a consequence listings that are in good condition and well-priced are going quickly, sometimes with multiple bids.

Sounds great for sellers, and it is – but there is also a catch.

Almost every final purchase contract contains an appraisal contingency. The appraisal contingency states that the property must appraise at or above the contract price. If the property does NOT appraise, the buyer presents the appraisal to the seller, and the seller has the opportunity to agree to pay at the reduced appraisal price. If the seller does not agree to that, the buyer may terminate.

Here is where we often get into a big problem. By definition, appraisals are backward looking. The appraiser looks at similar properties that have sold in the recent past within a certain geographic radius. Even when the market is rapidly improving, the appraiser is bound by the sales that took place in the past. So as you can see, prices cannot rebound suddenly and quickly; the appraisal process does not allow that. Prices must rise more slowly and steadily, as appraisals must build upon homes that have already sold. Good appraisers will also research other properties currently under contract and set to close, which is helpful; but cannot completely take into account a market where suddenly there are more buyers willing to pay more for houses.

To illustrate, good well-priced homes are selling with multiple bids within days of being put on the market (or even BEFORE we list them). The contract price is often higher than the home will appraise for, so buyers are even, in some instances, agreeing to pay extra cash to pay ABOVE appraised value. There is one listing where the buyer agreed to pay $75,000 OVER the appraised price; while that is more than most buyers would be willing to cover, there are others willing to pay more than the appraisal says the property is worth.

And it’s not just home sellers who need to take this into consideration. Any homeowner who has a need to determine the current value of the property should take heed of this dynamic.  For instance, divorces. What this means is that if you are the divorcing party accepting a “payout” you may want to either wait some period of time before you agree to appraise the house for  the payout, bargain for a higher payout that might otherwise be negotiated, or provide in the settlement that there will be another appraisal in a year, having the party keeping the house pay you half of the increase in value in the home at that time.

If you are curious what your home might be worth in this market, here are some of the pertinent factors.  If you contact a Realtor, while they are not appraisers, they can pull comparable properties for you and give you an idea of what your property might be worth in this market:

• How many beds/baths?
• What type construction (brick, frame, vinyl or stucco?)
• What style (two story, ranch, split level?)
• What year was the house built?
• Any significant upgrades or renovations and if so, what year – and a short description of what was done.
• Parking – is there a garage or carport?  Two car?
• Square footage of the home and acreage of the lot.
• Neighborhood and school districts.

Armed with this information, a Realtor can help you determine whether or not your home is in a high demand area and poised to receive top dollar in this improving market. Just keep in mind that you should also have a strategy for handling the appraisal if it comes in lower than your contract price.