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In a hot market like we have with no inventory, there may very well be a bidding war that pushes up the selling price to more than the house will appraise for.
The appraisal is mainly to make sure the bank can cover itself, right? It doesn't necessarily relate to the true value of the house, particularly in a unique area where an inexperienced appraiser may not realize the little things that make a house worth top dollar....
So the buyer (if they truly and desperately want the house) can add cash to the deal to make up the difference, correct...?
Any other things to be aware of with a situation like this...?
In a hot market like we have with no inventory, there may very well be a bidding war that pushes up the selling price to more than the house will appraise for.
The appraisal is mainly to make sure the bank can cover itself, right? It doesn't necessarily relate to the true value of the house, particularly in a unique area where an inexperienced appraiser may not realize the little things that make a house worth top dollar....
So the buyer (if they truly and desperately want the house) can add cash to the deal to make up the difference, correct...?
Any other things to be aware of with a situation like this...?
Absolutely. The mortgage issuer needs to be sure the LOAN is smaller than the market value of the house less costs. Consider, for example, a house where the selling price is $400,000, it appraises for $380k, and the buyer plans to put down $250k for a loan balance of $150k. No way they can't recoup their costs and principal if they default on the loan.
It's going to come down to the policies and procedures of the individual lender. Above is an extreme example and generally the differentials are going to be a lot closer to the lender's costs, so it would be a case by case assessment.
Yep.....I know appraisers are not perfect and in many cases, just not very good...so it's kind of a crap shoot. Case in point...we recently had an appraisal for a Re-Fi and she was $50k less than where it should have been. She missed so many things, including a bedroom . We didn't care because it was way more than enough (2X) to cover the loan.....but it was an eye-opener to say the least. You're kind of at the mercy of these people that are hardly scientific with their views of real estate.
It would be nice to be able to sit down with them and show them your own comps and reasoning......
In a hot market like we have with no inventory, there may very well be a bidding war that pushes up the selling price to more than the house will appraise for.
The appraisal is mainly to make sure the bank can cover itself, right? It doesn't necessarily relate to the true value of the house, particularly in a unique area where an inexperienced appraiser may not realize the little things that make a house worth top dollar....
So the buyer (if they truly and desperately want the house) can add cash to the deal to make up the difference, correct...?
Any other things to be aware of with a situation like this...?
Your Realtor should have no problem explaining this to you.
The greatest consideration is what % the Buyer is putting down, and how much they COULD put down.
Yep.....I know appraisers are not perfect and in many cases, just not very good...so it's kind of a crap shoot. Case in point...we recently had an appraisal for a Re-Fi and she was $50k less than where it should have been. She missed so many things, including a bedroom . We didn't care because it was way more than enough (2X) to cover the loan.....but it was an eye-opener to say the least. You're kind of at the mercy of these people that are hardly scientific with their views of real estate.
It would be nice to be able to sit down with them and show them your own comps and reasoning......
well, you could have straightened out the BR count, and they would have changed the APV.
if the sale price is justified by comps, then the listing agent should be ready to share them with the appraiser. the listing agent should absolutely be telling the appraiser "the house was on the market 3 days and got 5 offers." or. whatever is reality
Yes, OP, you are correct. In a hot market, appraisals can lag behind just a bit and the buyer may need to bring in cash to make up the difference if getting a loan.
I do. Every single house that I have had an appraisal on I always give them a spreadsheet of everything that has been done, a total cost basis that I have in the house, as well as 4-6 excellent comps that they cannot avoid using. They'll usually ask me what I think it is worth even. It helps to be a realtor when doing cash out refi's since the appraisers seem to actually love being provided all this information. Working for a client is completely different, I get that, but not if you are selling. You can still do all of the above when the appraiser comes out.
Quote:
Originally Posted by BoBromhal
well, you could have straightened out the BR count, and they would have changed the APV.
if the sale price is justified by comps, then the listing agent should be ready to share them with the appraiser. the listing agent should absolutely be telling the appraiser "the house was on the market 3 days and got 5 offers." or. whatever is reality
We use what is called an appraisal gap clause in our offer.
The buyer will bring an additional $yy,yyy dollars at closing to cover the deficiency between purchase price and appraised value.
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. We didn't care because it was way more than enough (2X) to cover the loan.....but it was an eye-opener to say the least. You're kind of at the mercy of these people that are hardly scientific with their views of real estate. 
