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The issue of this thread is a common one and I am glad Dustin brought it up. Read my more general comment further on if you care to. I decided then that the most important Power in my life was not a banker, real estate agent, or any other professional. I have made a few people angry over the years (and even ended up on more than a few ‘black lists’) as a consequence of that decision.
What the lender is concerned about is the ratio of the loan to the appraised value of the home, not necessarily the purchase price. For example, during a seller’s market – the seller has an advantage , and new construction homes can sell high. However, if your closing date arrives in a buyer’s market, where prices have started to plateau – it could lead to an appraisal that falls below the purchase price.
When Can a Seller Back Out of a Sale?
My experience found that the market is current being impacted by a shortage in supply with high demand causing buyers not to react rationally but in a frenzy to buy. As I said before, when this happens, it is the buyer who will set precedence by paying the difference between market value and the mortgage amount. Too bad there are some bad apples out their trying to make their clients happy. The content on this site is not intended to provide legal, financial or real estate advice. It is for information purposes only, and any links provided are for the user's convenience.
A buyer’s lender will base a home loan on the appraisal’s estimate of a home’s fair market value. Even if you’ve already agreed on a purchase price and accepted an offer, if the buyer’s lender sees a lower appraisal amount, it could pull the loan. More likely, the bank will adjust the loan based on the loan-to-value ratio, meaning the buyer will have to make up the difference in the appraised value and the purchase price if they want to buy the home. Unless your buyer was looking for a reason to walk away, they likely want the deal to stay together as much as you do.
Will my house appraise for the selling price in the buyer’s appraisal?
That way, they can present the appraiser with hard evidence about what they did to increase the value of their home. “Appraised fine” after all the favors I did for them pissed me off. They were also hiding a couple of other things, so in the last few days I was done doing anything that inconvenienced me. Don’t hesitate to shop around the same neighbourhood or even nearby neighbourhoods because maybe you’ll find a home that’s even better than the one you’re looking at right now.
Our Home Advisors are experienced local agents who know how to sell for top dollar and help win your dream home. If things don't go according to plan and the buyer makes an offer that surpasses the home's appraisal value, they have a few options for how they can proceed. Your house is worth more than you are purchasing it for. Hopefully, the realtor will keep mouth shut and the seller's agent won't find out. Seller can't do anything, but could become difficult if problems arise with inspection.
Offer seller financing
It’s one of the final steps in the home-buying process, and it’s an important factor to the sale going through. A low appraisal may seem like a major misfortune when you’re selling your house — both for you and for your buyer. But low real estate appraisals are more common than you think. Contingencies are conditions that must be met before a real estate contract is legally binding, and each includes a specified time frame. An appraisal contingency is a clause that allows home buyers to back out of their contract if the appraisal value of the property is less than the agreed-upon purchase price. It simply means that you've agreed to pay the seller less than the home's market value.
Contract never meant anything to me other than what a particular buyer is willing to pay for a property which may be less, equal or more than market value. In my 27+years experience, I have NEVER rendered an opinion of value above the highest sale within the market place nor the highest sale presented on the grid page. If the opinion of value rendered is below the contract price, the buyer can come up with the difference to make the mortgage work. This is an example of the buyer setting precedence in the market.
The lender bases the LTV ratio on the appraised value of the home; not the purchase price in the contract. Nearly every mortgage application requires a home appraisal by the lender as part of the underwriting process. Ideally, the lender wants to see an appraised value that’s equal to or greater than the price agreed upon by the buyer and the seller, but sometimes the appraisal comes in lower. In those situations, the buyer and seller have to reach a mutually beneficial solution that ensures the transaction will go through. Pending sales and listings are only used on the appraisal report to show what the current market is doing; appraisers do not consider these comps in their final opinion of value. Once the appraiser does their inspection, homes that sell even a day or week later cannot be use as comps.
Whether you should price your home above its appraisal depends on the accuracy of the appraisal, local market demand, neighborhood appeal and the likelihood you’ll get a cash buyer. Many buyers prefer to write in an appraisal contingency to the purchase contract, allowing them to walk away without losing money if the home appraisal comes in low. When you put your home on the market, things don’t always play out how you expect. You might struggle to find the right buyer, you may discover your home needs more maintenance than you thought, you could discover your home’s not quite worth what you hoped. If the latter’s the case, you’ll want to know if you can sell for more than the appraised value.
The home buyer, in some cases, can request an appraisal rebuttal. This is a formal process in which the buyer’s lender submits a request for the appraiser to re-examine the appraised price of the home. As a home buyer, it’s risky to waive your appraisal contingency.
Of course, this arrangement is subject to the buyer’s lender approving the smaller down payment and greater loan amount. In a home purchase, appraisals are completed by a third-party licensed appraiser who is hired by the lender. The appraiser is typically chosen at random and can’t be connected to the transaction in any way or have any relationship with the buyer or seller.
Or do you need to feed your ego with a an appraisal that is 50k higher than the purchase price? A purchase appraisal is a tool for the lender and in most cases the homeowner should not even see it. A refinance appraisal and/or general purpose appraisal are different from purchase appraisals because there are different dynamics that are taken into account. Days on market, reason for sale, and yes PURCHASE PRICE. I haven’t read all of the comments above but did read the original post and some of the comments after it. We are attempting to buy a home where we plan to live for the next 20 years.
If appraisers think the sales price should be considered, why not allow a preliminary value to be submitted that is derived without knowing the sales price, and a second value that considers the sales price. Then we could determine if the impact of the sales price on the appraisal was within reason or if it is more of a driver or the final figure. I was invited back to the same community and to the same subdivision. This time, the home was slightly larger, but otherwise identical to the first one in every way. Now, how would I have felt if I had done the unethical thing with the first deal and “made it work? ” As it was, the amended purchase contract for the first home came over a week later for $320,000.
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