As we go into the spring market in the Lehigh Valley, we are running into Appraisal problems with Home Sales and the agreed upon Purchase Price.
The buyer agreed to pay X amount for the house but the appraisal came in lower. This is the same problem that occurred last spring.
A low home inventory over the past two years and a pent up demand by home buyers is causing problems with what a buyer is willing to pay and what a Bank or Mortgage Company is willing to lend based on the Appraisal of the home.
When a Lehigh Valley Home Buyer purchases a home using a Mortgage, the bank orders an Appraisal on the home. An Appraisal is used as the eyes and ears for the bank. What condition is the house in? Does it need any repairs? What is the home worth? Is it worth the Purchase Price?
The appraiser visits the home, checks square footage and condition and then looks at recently sold properties to determine the value of the home. In an ideal world, the appraiser will look at sold properties in the same school district, within 1 mile of the home and homes that sold within the past few months. The home types should match. For instance, if the appraiser is determining the value of a ranch home then they should look at recently sold ranch homes.
The problem with the current market is that the appraisals don't keep up with the demand by home buyers. A home buyer that has lost out on getting a few homes may be willing to pay the asking price and possibly more than the asking price. Just because a home buyer believes the house is worth more doesn't mean the "sold properties" will justify the higher price and the bank will lend them the higher amount.
Home values go up a little at a time. If a Lehigh Valley Home sold a block away last month for a certain price it makes it harder to sell the same exact home for $10,000 more weeks later just because 5 buyers want it.
If a home Doesn't Appraise for the Purchase Price, the appraisal can be contested but in order to change the appraisal additional sold properties must be found or a blatant mistake in the appraisal must be identified. For instance, the appraiser didn't include the additional full bath or used ranch homes to compare to a two story colonial.
When a Lehigh Valley Home Buyer and Seller are faced with a low Appraised value there are 4 options:
- the seller takes the lower value
- the buyer agrees to make up the difference with out-of-pocket cash (the mortgage won't go higher than the appraised value)
- the buyer and seller split the difference
- the deal falls apart and the seller puts the home back on the market with hopes of getting the same higher price and a higher appraisal
If a home buyer is paying cash they may or may not make the purchase contingent on an appraisal. As a cash buyer they may decide they feel the home is worth the purchase price they are paying and since they aren't getting a mortgage an appraisal isn't required. A cash buyer can over-pay if they want to.
For all of your Lehigh Valley Real Estate information, visit www.lehighvalleyhomesonline.com
