There are many aspects of a real estate transaction that can affect the sale of your home. Or buying for that matter. One of the pieces of the complex pie is the appraisal. An appraisal can make or break a deal. You can have a well qualified buyer lined up and ready to close on a deal and then….the buyers financing falls through because the appraisal came in low. Banks will only loan money on a property if the purchase price is equal or higher than the appraised value. Why would they? It wouldn’t make sense from a financial position, especially in an unstable market.
Appraisal issues have led to an unnaturally high number of contract cancellations. The National Association of Realtors (NAR) reported, “Twenty-one percent of NAR members in January reported delays in contracts, and 33 percent said contracts fell through.. The number of contract cancellations remains mostly unchanged from December. This is an increase from previous years, contract cancellations and delays have been blamed on more lenders declining home loan applications due to stricter underwriting standards and appraisals coming in low and under the agreed upon price.”
In this market, it is much more likely that a home will appraise for less than the seller wants to sell for. Unless the buyer has the additional funds to make up the difference between the banks appraised value and the agreed upon purchase price, the transaction can not move forward. Appraisers these days are much more conservative than they were in 2003-2007. Now, after the “real estate bubble” burst, they are trying to prevent another artificial bubble. This again would have another negative impact on the housing market and economy in general.
Another factor on the appraisal is the number of foreclosures and short sales in your area. If there is a high number of distressed properties selling, this could bring the values down. Typically people that are foreclosed on or short selling stop taking care of their homes causing deferred maintenance which can bring down the value of the home. Even though your home is maintained and in great shape, appraisers will take the values from all homes sold including distressed. Ask you Realtor before you sell what the make up, or ratio of distressed properties is in your area and how it will affect your value.
These are important aspects to take into consideration when choosing an offer to accept or writing an offer to purchase as well. Make sure you accept an offer that’s value is correct or make sure the buyer has the money to make up the difference. Just because you feel the home is worth more, doesn’t necessarily mean it is.