Hi there, everyone. Hope you are having a terrific day.
When you think back to how miserable the housing market was just 5 and 6 short years ago, a topic about appraisal issues due to high purchase prices sounds like a champagne problem, doesn’t it? Still, anytime we swing from one end of the spectrum to the other, it ushers in a new set of issues.
My focus on this, as with all others in a real estate transaction, is “how can I best anticipate issues and prepare/protect my client”?
In the case of appraisal issues….lets use an example to hone in on the issue. A great home (good condition/competitively priced) comes on the market Sunday and there is an open house scheduled the very day it comes on the market. The listing agent is so confident that the buyers will come in that they tell us that offers will be presented to the seller at 5:00p.m. Remember that the Open House is scheduled from 1:00-3:00p.m. so we already know we have to act quickly.
Now, this listing agent is not being arrogant….this is how brisk our seller’s market is right now and they know it. More than likely, they will have several offers to present to the seller. These multiple offer scenarios are driving purchase prices up….higher than the asking price.
This is where the appraisal issue comes in. Once the contract is signed by all parties, inspections are completed and any repair issues agreed upon, here comes the appraiser. Most transactions are financed so the lender will send out an appraiser to make certain that the home value is in sync with the purchase price based on condition and area sales. If the purchase price has been pushed up due to this multiple offer scenario we might find ourselves addressing the issue of “what if the house doesn’t appraise for what I’ve committed to paying?”
Your agent should be explaining to you — in your early consultations and throughout the transaction process — what each step will look like…including the appraisal process. This is time well spent as you don’t want to find yourself in a rush and hearing new concepts as they are unfolding live. At a minimum, the client should be hearing what the plan is, in the event the home will not appraise for the contract amount, when they review and sign their offer. It should be specific and in writing. What are the options of each party and how many days we have to get it resolved (ex. reappraisal, renegotiation of purchase price, etc). Lastly, what are the options of all parties if it cannot be resolved and what happens to the buyer’s earnest money?
No matter which side of the transaction you are on, your agent will be key in walking you through scenarios and making sure that you know your options if this were to happen. You don’t have to fear this issue, you just need to have a plan in the event it occurs.
Take care everyone and let me know if you need anything.
Broker Owner and Realtor — Domicile One Realty
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