Boston Real Estate for Sale
Appraisals are killing real estate deals
As competition for limited housing inventory intensifies, buyers are bidding up home prices. But many have found that the tactic of making an aggressive bid to beat out other offers backfires, as the appraised value of the home falls well below the agreed price.
The National Association of Realtors’ latest Confidence Index Survey, based on a poll of real estate professionals’ transactions, found that 23% of all sales were delayed due to appraisal issues and that 12% of the proposed deals ultimately fell apart as the problem could not be resolved.
“I don’t remember any time when the frequency of buyers being willing to pay so much more than the market data was this high,” said CoreLogic’s chief appraised Shawn Telford in an interview with the Wall Street Journal.
Real Estate Inventory
With existing home inventories at record lows, bidding wars among buyers have become extremely common over the last year. Many prospective buyers are stretching their budgets to the max in their desperation to buy a home, and that often means they bid well over the odds for the home they desire.
While that may get the attention of the seller, it can be an issue if the buyer needs to secure financing to fund the purchase. Mortgage lenders will typically only lend the amount to cover the appraised value of the home, as opposed to what the buyer might think it’s worth. So, once a bid has been accepted, the mortgage company will send an appraiser to go and value the home. If the appraised value of the home comes in lower than what the buyer is offering, the mortgage company won’t provide the financing as it considers the loan to be too risky. In that case, the parties need to renegotiate – but if the seller won’t agree to a lower price, the buyer must come up with the extra cash, or else the deal falls through.
Appraisers typically factor in comparables such as recent closed and pending home sales of similar properties in the area to determine a home’s value. But sales can take as long as two months to close after going under contract, and during that time prices can move up or down fast. Some sellers complain that appraisals aren’t keeping pace with the rapid price growth seen in many U.S. markets today.
But appraisers say they carry out very thorough assessments that factor in more than just local market conditions and what the buyer is willing to pay during a bidding war. They claim that part of their job is to protect buyers from overpaying.
“In a frenzied market it is harder to nail down what true value is,” Jonathan Miller, chief executive of the appraisal firm Miller Samuel Inc., told the Journal. “Just because the appraiser doesn’t agree with the purchase price, whatever the reason, it doesn’t mean they’re wrong.”
Boston Condos for sale and the bottom line
To deal with low appraised values, some buyers simply waive the appraisal contingency -essentially they’re promising they’ll make up whatever the difference is in cash. But that is happening less now than it was before, with appraisal contingency waivers occurring in 25% of residential real estate transactions in August, down from 27% in July.
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Updated: Boston Real Estate 2021
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Boston Real Estate for Sale
Appraisals are killing real estate deals
In today’s Boston real estate market, low inventory and high demand are driving up home prices. As many as 54% of homes are getting offers over the listing price, based on the latest Realtors Confidence Index from the National Association of Realtors (NAR). Shawn Telford, Chief Appraiser at CoreLogic, elaborates:
“The frequency of buyers being willing to pay more than the market data supports is increasing.”
While this is great news for today’s sellers, it can be tricky to navigate if the price of your contract doesn’t match up with the appraisal for the house. It’s called an appraisal gap, and it’s happening more in today’s market than the norm.
According to recent data from CoreLogic, 19% of homes had their appraised value come in below the contract price in April of this year. That’s more than double the percentage in each of the two previous Aprils.
Boston real estate
The chart below uses the latest insights from NAR’s Realtors Confidence Index to showcase how often an issue with an appraisal slowed or stalled the momentum of a house sale in May of this year compared to May of last year.If an appraisal comes in below the contract price, the buyer’s lender won’t loan them more than the house’s appraised value. That means there’s going to be a gap between the amount of loan the buyer can secure and the contract price on the house.
In this situation, both the buyer and seller have a vested interest in making sure the sale moves forward with little to no delay. The seller will want to make sure the deal closes, and the buyer won’t want to risk losing the home. That’s why it’s common for sellers to ask the buyer to make up the difference themselves in today’s competitive market.
Downtown Boston Condos for Sale and the Bottom Line
Whether you’re buying or selling a Boston condo, let’s connect so you have an ally throughout the process to help you navigate the unexpected, including appraisal gaps
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Home appraisers are struggling to keep up with a sudden surge in Boston’s real estate buying and refinancing. As a result, turnaround times for appraisals are increasing, causing delays in the underwriting process, HousingWire reported this week.
HousingWire said a survey of lenders showed that many are being quoted two to three weeks for an appraisal, which is far longer than usual. In one case, a lender was told it would take 10 days before an appraisal, but it actually came back 27 days later. And in hot markets like Colorado, some say the appraisal process can take up to four weeks, or longer.
The industry is also held up by a limited number of underwriters available to keep up with demand, said Brian Covey, vice president of regional production at LoanDepot.
The problem is that mortgage volumes have surged ever since lockdown restrictions began easing in May. Low mortgage rates have created more demand for appraisers and underwriters than they can handle.
The only good thing is that appraisal waivers are now rising in some markets.
But some appraisers argue that automated technology is not as transparent as having a human come in to appraise a property.
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