When a Home Sells Way OVER List Price, Will It Appraise?
Six of our last ten sales were ABOVE list price (see below which ones), so in a seller’s market it’s not uncommon for homes to sell well over their list price. As the real estate market heats up, more home buyers and sellers are likely to encounter the problem of an appraisal that is lower than the agreed-upon sale price. Appraisals must be based on recently closed transactions, and in a rising market those past transactions are likely to be lower in price.
Whether you’re a Seller or a Buyer, it’s important to understand the risks involved around low appraisals and the options available to you. New restrictions on the relationship between lenders and appraisers were put in place and aimed at curbing the appraisal abuse that contributed to the housing bubble years ago. Lenders order an appraisal from a list of approved appraisal companies, and a third party directs the individual to perform the appraisal. With these new third-party rules, the appraiser who is assigning a value to your home may not be from the immediate area and may not know the quality of the school district or the amenities in the local neighborhood, as well as improvements to the property as compared with other recent sales in the area.
Once an appraisal comes in low, the Buyer has five options:
●Negotiate a lower sales price.
●Dispute the appraisal with the original lender.
●Get a fresh appraisal with a new lender.
●Make up the difference in cash.
●Walk away from the house based on the appraisal contingency in the contract.
When a Seller is negotiating an offer above list price and has concerns that it will appraise, their real estate agent can communicate with the Buyer agent the expectation that the Buyer will bring cash to make up the difference on a low appraisal. Working with a trusted real estate advisor with experience can make all the difference in the world with such a large amount of money on the line in the purchase or sale of a home. Contact the Finn Team for professional real estate advice to buy or sell your next home.
Here are just a few examples: