|
What Can I Do If Market Value is Superior than Appraised Value?
When it comes to know the market value of a house, you will hardly ever find the same estimation. Why? In fact a home's market value is only the perception of the buyer. There are no rules. For different types of buyers, they will be ready to pay very different amounts of money. Then, sometimes, most often in a situation with multiple buyers, offers will be made that exceed the listing price. Buyers fall in love with a house so much that they are willing to risk that it might not appraise at the purchase price. Appraisals do not always match market value.
Appraisals are performed for lenders and not buyers. In fact, appraisals are only made to justify the sales price so that the lender feels they are making a solid investment since the property is collateral for the loan. Most appraisals are computed thanks to historical data such as the average sales prices of the house sold in the last four months.
Buyers need to be prepared in advance for the possibility that the appraisal might not match the market value in certain situations. How to be prepared for this situation? In fact sellers will need to prepare by counter-offering that appraised value is not a contingency of the transaction. By doing this, it will almost automatically disqualifies buyers making minimal down payments, because a low appraisal will affect their ability to qualify for the loan.
Indeed most lenders base the loan amount on either the appraised value or the purchase price, whichever is lower. If a buyer is applying for a 5% down loan and the appraisal comes in low, the loan amount will be calculated based on the appraised value. The required down payment will be 5% of the appraised value, plus the difference between the appraised value and the purchase price. This situation requires additional cash. If the buyer does not have the additional cash available or is "surprised" by a low appraisal, the transaction will be put in jeopardy meaning that the seller needs to start over and find another buyer.
|
