I can remember a time (seems like ancient history now) when a home appraisal was good for 6 months. Today, sometimes you feel you’re lucky if it’s valid for 60 days! Volatility in the real estate market in the West Michigan area mirrors much of what is happening in other parts of the country. Home prices have declined at record levels due to the economic upheaval in the financial markets and continuing challenges in the jobs sector.
The recent changes in appraisal standards has impacted many new purchases and generated a lot of discussion in the appraisal community. For home buyers, these changes have sometimes resulted in home appraisals which were lower than the market price arrived at through agreement in an arm’s length transaction between a home seller and home buyer.
For home buyers who find that the appraisal value is lower than the sales price, there are few options. They may be able to walk away from the transaction without financial penalty if the transaction is funded through a FHA loan (Federal Housing Authority) and all parties to the transaction have signed an Ammendatory Clause Addendum or face a decision about making up the difference between the appraised value and the purchase price. This essentially means that a home buyer will be bringing additional cash to close on a transaction. A good real estate agent can be of valuable assistance in negotiating a reduction in the sales price to accommodate for a low appraisal.
There are a few things that a home buyer should keep in mind when faced with this situation. Although this list is not exhaustive, it provides a basic framework of consideration if you find yourself in this position.
1. Don’t panic! Get the facts!
Ask to see the appraisal. Afterall, you have paid for it. Sit down with your lender and real estate professional to review the comparables used by the licensed appraiser.
2. Submit additional data!
Sometimes there have been recent sales which have not been reported which the appraiser may be unaware of. Appraisers are human and can make mistakes or miss things. You can submit additional data or home comparisons to the appraiser for consideration. A licensed appraiser is not required to change his/her report based on your submission, but it’s worth some additional effort if you feel you have some information which gives a more complete profile of the property.
3. Know the Housing Values in the Area!
One of the biggest challenges in determining home values today is the large number of foreclosed and distressed/short sale properties on the market. Your proximity to sale of one of these properties will impact the amount of money the bank is willing to loan you on a home although this number may not be entirely reflective of the true market price of the home. When making an offer, it is important to factor in the distressed sale activity in a given area and make appropriate adjustments.
4. Consult with Qualified Professionals!
Most real estate contracts will include a clause which advises that consumers obtain appropriate counsel from qualified professionals. When dealing with Short Sales or Distressed properties, this can be especially valuable. If you have questions about the terms and obligations on your contract, it is wise to seek counsel.
A successful real estate transaction today requires patience, extensive market knowledge, good negotiation skills and the ability to create solutions which make sense for all parties. If you’re in the West Michigan area, the agents at Audu Real Estate are available to serve you and answer your real estate questions. Please contact us @ firstname.lastname@example.org.