Appraisals - Be Prepared for an Overregulation Headache
After months of research, you're ready to celebrate signing the purchase contract for the home of your dreams in one of the best master planned communities in the Southeast. Congratulations, but don’t bring out the champagne too soon! It is likely the bank’s appraisal on your new home will throw you a curve ball because of strict appraisal compliance guidelines, even if they don’t make sense.
Here are home appraisal tips to help you:
A home appraisal is an Opinion of Value and the appraiser must consider all homes sold whether they are normal arms length transactions or sold at an auction according to the Uniformed Standards of Professional Appraisal Practice nicknamed USPAP. Appraisers are required to consider the proximity of the appraised home to recent sales, the age of the home, property size and physical attributes. Distressed home sales have complicated matters for appraisers and appraiser's are unlikely to stick his/her neck on the chopping block for you, as the industry as a whole is dealing with its own slew of appraisal fraud issues. In a nut shell, a home sold for $150k through a foreclosure on the same street as three other homes sold for $300k would likely drop the appraisal value to $262k because it must be considered. Does that mean your $300k dream home is actually worth less?
You may be happy at first, when the appraisal figure comes in lower than the contract price thinking you have more negotiating power to reduce the purchase price. Now hold on to your horses Betsy because banks and lenders are quick to deny home loans on purchase contracts above the appraised value. This is killing deals across America and delaying the real estate market recovery. Home builders and real estate developers are in a up roar as to how to get their products sold to new happy home owners under these conditions. According to the National Association of Home Builders, one out of three deals in the past six months has fallen apart for low appraisals. While one distressed home here and there may have less of an impact in a larger community, smaller communities are feeling a greater impact.
The long term solution for appraisers is already in motion, legislators attempting to modify appraisal regulations stabilizing recognized home values. The short term solution requires buyers and sellers to be prepared to jump over these hurdles, providing hard facts to assist the appraiser before hand. By the time you get to the point of writing a purchase contract, it is likely you have visited every home for sale in a best master planned community. Some may have quickly sold. You probably know which homes need to be repaired, which are abandoned, in foreclosure, offered as a short sale, unoccupied and so forth. The appraiser primarily relies on public records and a physical inspection of your dream home under contract. He/she may not know the level of information you have acquired during your home search.
Another appraisal tip is to arm the appraiser with knowledge by preparing an analysis worksheet shedding more light on the value of your home, instead of taking a ‘wait and see attitude’. There may not be any more homes sold on that street again for $150k which means in six month's time, your $300k dream home would appraise for $300k. Of course, if the banks and lenders kill your deal today, your dream home will be long gone by that time.
Be smart, get good counsel and anticipate these obstacles before going to contract, so you can get to the closing day and celebrate with the bubbly. This is how we help folks in the real estate market. Reach out to us and say 'hello' by writing [email protected] or call toll free 866.384.1799. We're happy to help.