When I talk to Seller clients, I often hear a lot of reasons as to why my clients want to value their house at a certain price:

• Sellers need the money to move to their next house,
• Sellers have made numerous upgrades to the house,
• Sellers don’t want to “give their house away”.
• …and many more

While I try to present a good case for valuing the house and suggesting a price that I think a buyer will pay, it is really the decision of the owner of the house to set the price.

What Happens Next

The real challenge is that no matter what price might be agreed to between the Seller and the Buyer, the mortgage company will not provide a mortgage for any amount higher than the appraised value of the  house.

Here’s an example:  Let’s say the Seller decides to set the price of their home at $400,000.  The Realtor does a good job at marketing the house and a Buyer comes forward and offers, say, $374,900.  The Seller agrees and everyone is thinking it’s a done deal.  However, since the Buyer needs a mortgage to pay for the house and the mortgage company is not going to provide more financing than the house is worth, they will hire a licensed appraiser to determine the true value of the home.  If the appraiser reports back to the bank that the house is really only worth $350,000, that is the maximum the amount the bank will provide for a mortgage. Period. (We’re not even talking the requirements for a down payment or closing costs here.)

Possible Solutions

So the Seller and the Buyer need to come to an agreement that the Seller will:

1. Agree to accept the $350,000 appraised value,
2. Negotiate some middle ground with the Buyer or,
3. Take the home off the market.

There are some variations and other options but this is pretty much how it is.

The point I’m trying to make is that regardless of the agreed upon Sales Price or Contract Price, if the Appraised Value is less than the Seller will need to accept less, if he or she wants to sell their home.

Unfortunately, with the glut of “short sales” and foreclosures driving prices down it means that even Sellers who are not in trouble with their financing will need to adjust their pricing downward if they want to sell their home.

It’s not nice, fair or pretty.  It is reality and it doesn’t do any good to price a home high in the hopes a Buyer will pay it.  If the appraiser doesn’t think the house can be valued at the Sales Price the mortgage company will not provide the money.

No Sale.