Appraisals are an issue in today’s market. Here’s what you need to know.
In our market right now, increasing home prices are causing appraisals to not come in at value. What many people don’t know is that an appraiser’s job isn’t to value a property but to justify the price paid.
Lenders only want to pay the price the buyer is in escrow for, not more. However, appraisers can only look at the last six months of historical data; they aren’t the same as real estate agents who are looking at properties as they go into escrow. Appraisers can’t go into comparable homes; they can only look at photos and data. They don’t know the condition of the home, how good the view is, how big the lot is, etc.
That’s why currently, 13% of homes in California are not appraising at value. That’s fallen a bit from its height at 19%, but it’s still a pretty astonishing number. If the home doesn’t appraise, the borrower must make up the difference. If you’re in escrow for $1 million and it only appraises for $950,000, the lender will require the borrower to come up with that $50,000.
Lenders only want to pay the price the buyer is in escrow for, not more.
Also, about 25% of buyers are waiving their appraisal contingency. That means that if the house doesn’t appraise, they have no legal way to back out of the transaction. Be very careful if you’re considering removing your appraisal contingency; at least do an inspection contingency so you have a way to back out if something goes wrong.
If you have further questions about appraisals or anything else, call or visit my website. I would love to help you.