When the market crashed in 2008, you heard story after story of homes that were priced at $500,000, but appraised at $425,000. There clearly was a shift in the market. The buyers picked up on the shift right away, the appraisers followed behind shortly thereafter, and it took about two years for the sellers to get the message. Eventually, sellers came to terms with the loss in the value of their homes and started pricing more at market value. Buyers were still buying, appraisers were doing their best to stay ahead of the curve, and real estate agents were getting their listings appraised at purchase price. Once everyone embraced the shift, we stopped hearing about appraisal problems and the industry leveled off.
Fast-forward to present day and most of us now know that there is another market shift in Denver. This time, it’s a seller’s market in some price ranges. With people bidding on homes for over asking price, home values are rising quickly and once again, appraisers are trying to stay ahead of the curve. I am hearing stories about homes under contract for $15K over asking price, but appraised for $5k below asking price. Here is my advice:
Buyers: I understand that there is a lack of inventory out there and when a good home comes on the market, you do not want to lose it. Be careful in your bidding. Yes, you can offer 15K or more over the asking price; just understand that if it doesn’t appraise, the lender is going to ask you to bring more cash to closing to cover the difference between the appraised price and the purchase price. They will only lend on appraised price.
Agents: Once again like in 2008, we have to be sure about our pricing and comparables. I know it’s tempting to stretch the price on the high side on behalf of your seller. After all, you are trying to get them the highest price possible, but if it doesn’t appraise, it will likely be a deal killer and that won’t help any seller in the end.
Sellers: I know you see dollars signs after the last four years of getting beat up by buyers, but beware. Ask the question to your agent, “What happens if it doesn’t appraise for that purchase price?”
Happy house hunting!