Does a listing agent have to disclose prior low appraisals?
QUESTION: My buyer recently terminated a contract because the appraisal came in low. They couldn’t pay the gap between the purchase price and the loan amount. Several sales on the same property terminated for the same reason prior to our offer. Did the listing agent have a duty to disclose the prior low appraisals?
ANSWER: It is very important to note that the answer to your question will vary case to case. There are valid arguments both for and against disclosing a low appraisal. We do not have enough facts in your case to make a clear determination. However, we believe that the Real Estate Commission could consider multiple low appraisals to be a material fact in some cases. We therefore believe listing agents should err on the side of disclosure if they are aware of multiple low appraisals.
An appraisal is a report that expresses one person’s opinion regarding the value of a property on a particular day. A property’s value will fluctuate over time with market conditions, sometimes substantially. An appraisal is therefore not normally considered a material fact that must be disclosed, unless the appraisal is for an FHA loan.
That said, the Commission generally defines a material fact as “any fact that could affect a reasonable person’s decision to buy, sell, or lease.” If a home has had multiple low appraisals instead of just one low appraisal, the Commission could conclude that this fact meets the definition of material, which would then trigger the requirement to disclose. This may not be true in every transaction, but it could be true in some. This is why we recommend disclosure if a listing agent is aware of multiple low appraisals on a listing.
Low appraisals seem to be a common issue in many markets across North Carolina. We encourage buyer agents to explain this issue to their clients before making an offer, because disclosure of a prior low appraisal might not be required in every case.
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