How to Navigate Appraisal Issues

    The housing market in the greater Raleigh area is very competitive and homes are selling fairly quickly.  The numbers of people moving to the area for jobs, cost of living, retirement or just because they don't want to deal with another freezing New England winter continues to grow.  Wake County averages 63 new residents per day moving to the area. Along with this influx of new residents, the inventory levels of homes on the market continues to fall short in relation to the demand......especially in certain markets like Wake Forest, Cary, Apex and Holly Springs.  Add into this equation the fact that homes in specific price ranges (under $350,000) are selling in a matter of days sometimes.

    We are seeing multiple offer situations on lots of homes that are just a few days old to the market and my job as a buyer's specialist is to help my clients stand out from the rest of the buyers submitting offers.  There are several strategies that you can go with in order to stand out or differentiate yourself from another offer. One way to do this is to offer more than the asking price on the home. The problem that may arise with this strategy is that the home may not appraise for the contract price.......then what??

    There are certain dominoes that fall if the home does not appraise for the contractual price and the seller is not obligated to change the contract price to reflect the appraisal.  Please understand that the reason a bank requires an appraisal is to protect their investment in giving a mortgage to a buyer on a specific property. The bank may see a buyer as credit worthy of a $250,000 loan but if the home appraises at a value of $245,000 then the bank is going to protect itself and only give a loan based on the appraisal value.   In this scenario, if the contract is written at $250,000 and the appraisal comes in at $245,000, then the buyer is responsible for that extra $5000 if the seller is not willing to adjust the contract price. Sometimes this is not an issue and the buyer has the extra funds to bring to the table but in a lot of cases, they don't. With that said, you have to be careful when potentially offering more than the asking price of the home.  If you can't move forward with the purchase of the home based on a low appraisal, then you may have to walk away from the deal and thus forfeit your Due Diligence deposit and any other monies that you have spent toward investigating the home (home inspection, termite report, radon inspection,....) including the cost of the appraisal.

    If you do run into a situation where the home does not appraise for the contract amount and you as the buyer are unable to make up the difference or not willing to make up the difference, then there are some options.  You can go to the seller and ask for them to lower the contract price to the appraisal value. You can also ask the seller to meet somewhere in the middle between the appraisal and the agreed contract. In our example, you may be able to adjust the contract to $247,500 which would mean as the buyer, you would bring an additional $2500 to the closing table to get the deal done.  If this is not an option, then depending on the contract terms, you may be able to adjust the closing cost concessions amount that the seller was offering or remove items of value from the contract such as a seller paid home warranty to help meet in the middle.

    There is no crystal ball and sometimes you may feel you got a good deal on a home and the appraisal still comes in low.  As a friend of mine in the appraisal business in the Charlotte market once told me…..”sometimes you just get a bad appraiser”   Appraisals are not an exact science. If you need help with a home purchase and want to be protected, give our team a call and we will go to work for you.  The Kima Real Estate Group is anxious to hear from you.

Chad Wingler Lead Buyer Specialist chad.welcometocarolina.com 919-300-5241