How Appraisals are Affected When Real Estate Prices are High
Filed under: Real Estate Market
As real estate prices remain high, you might be wondering how appraisal prices line up with the current real estate industry trends. One of the surprising effects is that appraisal prices sometimes come in low, especially when the appraiser is having a hard time finding justification for the higher prices.
The Market is Hot and Comps are Changing
When an appraiser is on the job, they need to have solid information to show that the home is worth the stated price. Not only does the appraiser look at the current condition of the home, but they will also pull information about comparable sales in the area.
The reason this can be a nuanced process is that rising real estate prices can be as much as $10,000 to $20,000 higher compared to a comparable home that sold just a few months ago. Even though it has only been a few months, the appraiser needs to find comps that will justify the higher price of your property.
Appraisal Advice for Buyers
If you are getting ready to buy a home, then there are a few things that you can do:
- Skip the Appraisal: Not all buyers have the option to waive the appraisal. But if there is a home that you really want, then skipping the appraisal might be a good strategy.
- Identify Maximum Out of Pocket: Many home buyers aren’t able to swing the “blank check” difference between the appraisal and purchase price. If you are in this situation, then you need to know what your maximum out-of-pocket amount will be (if there is an appraisal shortage that you need to cover). For example, in the offer we might list: “Buyer agrees to cover an appraisal shortage, up to a maximum of $15,000, should the home not appraise.” Keep in mind that you are never obligated to pay an amount higher than the purchase price.
The seller wants to know that there is protection in place in case an appraisal shortage happens. So, adding in the out-of-pocket option or skipping the appraisal altogether can make your offer more appealing.
One important thing to understand: if the appraisal comes in lower than expected, then we have a chance for negotiation. Either the buyer needs to offer more, or the seller will need to come down on their price.
If you need personalized advice for your upcoming real estate transaction, then I’m always just a phone call away. Call, text, or email me at (951) 473-0390 or [email protected].