Here’s why appraisals are causing issues and how you can prevent them.
In this crazy market, one specific issue is coming up time and time again: appraisals. Today we’re talking about what you need to know about appraisals if you’re buying or selling in this market. You have to understand them because they’ll impact how much you’ll sell for and how much you’ll have to pay as a buyer.
An appraisal is an opinion of value. If you’re a buyer who is obtaining financing, you’ll need an appraisal done. The lender requires a third party to assess the home’s value to make sure they aren’t overlending. They’ll do their own analysis of what they think the home is worth. Even if the appraisal contingency is removed from the contract, an appraisal still needs to be done.
The reason why they’re such a hot topic in the market these days is that home values are appreciating so quickly that the appraisers can’t keep up with the high prices.
What does this mean if you’re a seller? It means that if you list your house for a price that’s higher than the recent comps and it sells, you may have some issues to work through. Let’s say your home is worth $650,000 based on recent comps, but you list it at $700,000 because demand is so high.
Even if a buyer agrees to pay that price, your appraisal will likely come in around that $650,000 mark. Within the contract, there is an appraisal contingency that says the appraisal has to come in at the $700,000 offer in order for the bank to lend the money. If the appraisal does not reflect that, you’ll have to go back to the negotiation table.
In this market, that’s not what you want to do. Your trusted agent should be able to negotiate some ability to remove the appraisal contingency from the contract so you get closer to your original price of $700,000. More and more, buyers are willing to do this because that’s what they have to do to win in this competitive market.
If you’re a buyer, that’s tough information to hear. Believe me, I don’t want you to pay more than the asking price either. However, with such low inventory, you have to be positioned to do something extra. You’ll have to either remove the appraisal contingency or agree to cover a certain amount above and beyond the appraisal. I suggest sitting down with your trusted mirage advisors and look for ways to strategically approach the negotiation.
In this marketplace, where multiple offers are common and demand is sky-high, you need to understand that you have to be ready for appraisal issues to come up. It’s the No. 1 issue that’s coming up these days.
If you have any questions about appraisals or real estate in general, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.