Here’s why we don’t have to worry as much about appraisals in this market.
What happens when the home you’re buying or selling doesn’t appraise? With multiple-offer situations and homes selling far above asking price, this has come up quite a bit this year. Homes are typically currently appraising at or above asking price. That wasn’t happening a few months ago, but appraisers have adjusted expectations and pricing and are looking at more specific data.
A couple of reasons why a low appraisal isn’t as much of an issue anymore is because many home sales are in cash, and even if they aren’t in cash, people have very strong equity positions. Meaning that if someone’s offering above asking price, we’re frequently seeing down payments in the 30% to 40% range. So if the home doesn’t appraise, the buyer has the wherewithal to make up the difference between the prices.
If a low appraisal happens, there are a few options for how to proceed. First, the buyer and seller can negotiate a different price. Second, if the buyer has a clause in their contract about this, they can walk away from the deal, though we aren’t seeing much of that right now. In fact, we’re seeing the opposite; appraisal waivers are being written into contracts saying that the buyer will buy the home no matter how it appraises.
"Homes are typically currently appraising at or above asking price."
In a highly competitive real estate market, appraisals just don’t mean as much. Also, in a high equity market such as ours, homes are simply selling for what people are willing to pay for them. The usual conditions where we would see appraisals have a large impact on the ability of a home to sell just aren’t there these days. Frankly, I think our market has been undervalued for several years.
Buyers are now coming in aggressively, making strong offers, and closing the deal. Three years ago, I would have said that about 20% of homes under contract don’t close, many for appraisal reasons, but that number is far below that today. This is a healthy sign that our market is robust.
We’d be glad to share more information and stats if you have any questions or real estate needs. Call or email us; we’d love to help you.