Appraisals: When Demand Outpaces the Market
Once contracts are executed and the ink dries on the earnest deposit check, Buyer’s likely set their sights on financing. And why not? With interest rates in the high 3’s and low 4’s you cannot borrow money any cheaper. With a recovering real estate market and pent up demand, the market is heating up and purchase transaction activity has increased.
That said, many Buyers are wringing their hands when faced with a big decision if the appraisal comes in lower than the contract price they agreed to. Typically, an appraisal evaluation is conducted after the purchase price has been agreed to. It is not uncommon in this active market to see the appraisal come in five, ten, even fifteen thousand dollars lower than expected. This presents a real conundrum and one that Buyers have not experienced in quite some time.
Three tips to avoid pitfalls:
1. Order the Appraisal Early
Often this can be difficult to do too early in the loan underwriting process as the Borrower’s credit, assets and income and liquidity position are being analyzed. Appraisal are expensive no one wants outstanding invoices as the result of an incomplete transaction.
2. Ask your Real Estate Agent to Attend the Inspection
This can be helpful should the Appraiser need extra data points or the added value of the Professional that is especially knowledgeable about the neighborhood. His/her expertise can provide insights into an area that may be distinct in location or upcoming closings to be used as sales comparisons.
As part of the newest mortgage lending regulations, Section 1472 of the Dodd Frank Act, known as Appraiser Independence was established to restrict mortgage representatives in their communication with the appraiser. This new process was an attempt to eliminate implied pressure on the appraiser to inflate values that may be unjustified based on sales comparisons.
3. Be prepared & Have an Expert on Your Team
Have a plan B for how you and your family might respond should the issue arise. You’ve found your family’s dream home, you are content and have agreed to the price and terms of the contract and mortgage loan. You’ve likely created your Pinterest board or are daydreaming of where you will put the pool table in your new man cave.
Now, the appraisal comes in low – will you pay the difference over and above the loan amount? Is your Lender creative enough to help you restructure your terms with a payment you can afford? Will you attempt to renegotiate the price? Perhaps (and likely in this market) there is another family waiting in line with a backup offer- to scoop up your new home?
At American Liberty Mortgage, we help home-buyers make these decisions every day. We have been in business for over 20 years and leverage the collective knowledge and experience of our best of breed Lending Professionals and experts, across our entire nationwide firm. We have your back and will guide you through these tough decisions.
Fortunately, this new challenge is an indication of a healthy real estate market and thriving economy. The values will catch up to the demand as more transactions occur, and more comparable sales are available for appraisers to use in their evaluations.
In this evolving market it is critical that your family doesn’t trust just anyone with this most important decision. Email or call the professionals at American Liberty Mortgage (407) 494-9833 and ensure you make a wise investment decision that will bring your family joy and memories for many years to come!