In a red hot market like we are in, homes have to be sold twice: once to the buyer and again to the appraiser. How much do appraisals matter? Check out the Q&A below to find out!
Is an appraisal required on my property?
If you are paying cash, then no. An appraisal is up to you as the buyer. If you are obtaining a new loan to purchase the property, then the requirement of a loan is up to the lender. According to Mike Dew, owner of Dew Mortgage, the appraisal requirement depends on several factors:
“With the ability to run loans through Fannie Mae(DU) and Freddie Mac(LP), we are seeing Loan Approvals that are coming back with no Appraisal required. The Appraisal Waivers are 100% based on the Fannie Mae and Freddie Mac Approval System. In order to receive a waiver, the borrower will need to put down at least 20%. We are finding that New Construction will always require an appraisal, due to that property not being able to be identified by Fannie Mae or Freddie Mac. Also, please note that even though an appraisal waiver has been granted, the borrower can always choose to have a complete appraisal ordered as part of the loan process.”
My appraisal came in lower than the purchase price, now what?
Great question! There is no appraisal contingency in the standard NC offer to purchase contract. The buyer can try to negotiate a lower price with the seller, or try to appeal the appraised value. Neither of these options has proven to be very successful in the current market. The buyer can also choose to pursue a loan with another lender, hoping that the second lender’s appraisal will be higher. Alternately, the buyer can put down a larger down payment. REMEMBER,lenders loan percentages based on the contract price but no higher than the appraised value. Note also that a builder’s contract, much like the standard NC contract, is unlikely to include an appraisal contingency.
Do appraisers take into account how long the house has been on the market and how hot the market is?
According to Pam Gantt, Regional Executive for Prosperity Home Mortgage,
“One of the most fundamental elements of an appraiser’s estimate of “market Value” is current market conditions. Like all prices, market value is always changing. Sometimes values go up and sometimes they go down. This is why every appraisal has an effective date. The appraiser’s job is to determine the nature of the current market, describe the market conditions (Increasing, Stable, Declining) and determine the impact on their estimated value. All sales, listings or pending comparable properties used in the appraisal have both their sale and contract dates identified in the appraisal. The appraiser will determine if any adjustments for time are warranted by market conditions.”
The seller has to reduce the purchase price to the appraised value, correct?
No, since there is no appraisal contingency in the standard NC contract, the seller doesn’t have to reduce the price.
Do I get my due diligence money back if the appraisal comes back lower than the purchase price? No.
Can I still buy the house?
Most likely. Depending on the type of loan you are going with, you will probably need to bring a larger down payment to closing. The lender will loan money based on the LOWER of the contract price or appraised value.
Should I still buy the house?
Bottom line: All appraisers have access to the same data, but appraisals are subjective. My best advice? Use a local lender, who uses only local appraisers. Local appraisers know appreciation, school districts, and historical resale values better than those who travel from outside of our market. You have heard it in retail, now hear it in real estate. Real estate is local, and your lender matters!
Wash your hands, practice your short game, and cheer for the Deacs!
Tori