Beware Of Appraisers That Can Ruin Your Deal!!!
April 29th, 2009 categories: Buyer Resource, Foreclosures, Seller Resource
Real Estate is in a state of paranoia as loan qualifications have gotten a lot more strict. Sure it’s great the prices have dropped tremendously; up to 50% from 2005 for some properties here in Sonoma County! First you have loan qualifications and requirements that change daily that can threaten the sustainability of a Real Estate transaction in escrow, ie: minimum FICO score requirements, debt to income ratios, interest rates, etc.. Then you have Appraisers. They can either make or break (”ruin”) your deal. How so?
When you have a continuous stream of foreclosures overloading the market with supply you see a continuous decrease in home prices. When home prices drop and continue to drop you get many of pre-approved Buyer’s and some All Cash Buyers ready to buy. That’s when the bidding war starts and suddenly this awesomely priced home is now $10,000 – $50,000 (sometimes even more) over original asking. The “lucky” bidder ends up opening escrow on this home because they were the only ones that went really “bid-crazy”. Most of the time these buyers will purchase the property with financing involved. Everything is fine and dandy and the loan is almost ready to get approved then it all comes to a screeching STOP! What happened??? The appraiser can’t get the property to appraise! Never mind the fact the property is already 20-50% lower than 2005 value. They can’t seem to find the right comps to have this property appraise. “Oh well” is all they get to say.
Then you think…Hmmm…Well isn’t this a good thing that values are starting to go back up? No! The deal won’t go through because the appraiser just can’t get this property to appraise. So what next?
If the Appraiser cannot get the property to appraise that means that the Buyer’s loan will NOT get approved and the deal stands in jeopardy of becoming lifeless because the Buyer cannot go forward and close the deal until 1 of 3 things happen:
- The Seller agrees to the new ”appraised value” that is lower than what the original contract price was. This is something that is occurring a lot more with investors that flip properties as well as Sonoma County REO properties.
- The Buyer comes up with cash to make up the difference. Most times this is not feasible for the Buyer as they had limited funds to begin with in the first place.
- Get a back-up lender to get the loan to go through with a 2nd appraiser that MAY appraise the property at the contract price at a minimum. But this is usually not the best option as this means trying to get the Seller to allow more time for you to get your 2nd opinion lender to buy some more time to get your loan approved. By this time the Seller is cursing and hating life.
How can Buyer’s and Seller’s prepare for such a frustrating situation and work through it?
Sellers:
- Pre-screen Your Buyer’s With Your Trusty Lender-Even though Buyer’s have their own lenders. It’s good to have your lender ready as a “Back-Up” option.
- Price Your Property Right! Below the market usually works to make room for over-bidding added value that the appraiser can account for!
- Have A Back-Up Offer Handy! This is just in case your first deal falls SPLAT on the ground, you have option B and let’s hope it’s an ALL CASH!
Buyers:
- Make Sure You Have A Reputable Lender - Known for not having “overly conservative” appraisers work for them, (ie: Institutional Banks tend to be amongst the winners of that category).
- Have Some Extra Cash Handy- just in case you REALLY want the home and you don’t want to jeopardize the deal if the Seller chooses not to lower the price because the Seller has a Back-Up offer breathing behind your neck.
- Go For The Right Properties! Properties that you may not have too much competitive Buyers bidding on them. This may be easier said than done but still possible.
I hope this proves to be somewhat useful to you as it was for me to write this post and vent. : ) We are not beating up on the Sonoma County Appraisers, but lately, it seems like a lot of deals have not been able to appraise. Almost all types of Sonoma County Properties have had trouble appraising, as the new standards have been made so much tougher, to protect lenders, and borrowers. The problem is not just localized to Sonoma County Real Estate, the problem is being seen in the rest of California and the rest of the United States as well. Make sure you contact a knowledgeable Sonoma County Realtor to help you navigate the Real Estate maze.
