Monday, June 22, 2009
Why Appraisals Can Cause Grief
Buyers Take Note: Write your purchase contract to give you maximum flexibility to renegotiate or walk away. The market is very hot right now in the price point under $500k for single family homes. Here's a recent issue that is causing us grief in the real estate industry. As prices are rising, appraisers aren't keeping up with the market. To be able to get a home in this price range buyers are typically faced with multiple offers from other buyers. The successful bidder starts the loan process by getting an appraisal. The appraiser is basing their value on homes that sold a couple of months ago before prices went up and show an appraised value less than the agreed-to purchase price. The only way a lender will lend money on a home in this situation is if the buyer pays the difference between the appraised value and the contractual value in cash. If the contract was written properly, the buyer can also try to renegotiate the price with the seller or walk away from the deal, out $500 she spent for the appraisal. The other option is to communicate with the appraiser the current market conditions and request him to make adjustments, something they are often unwilling to make. Some say this is a good process to protect lenders. Some say this inhibits a free market economy because no one cared when prices were dropping.