As a seller of real estate, we all want to get the highest possible price for the sale of our home. A Professional Realtor is critical to assisting you in determining the value of your home through a comparative market analysis of recent sales in and around your neighborhood. Just because a contract price is agreed upon by the buyer and seller, does not mean that there is clear sailing ahead. If the buyer's attorney has delivered a contract that fully protects his or her client's interest, the sale of the home will be contingent on an appraisal coming in at or above the contract price.
If the appraised value comes in below the contract price then the buyer is not obligated to purchase the property. In addition the lending institution is going to base its underwriting decision off of the lower appraised value, not the contract price. So at this point, the buyer and seller would have to negotiate a new contract price to the property which is consistent with the appraised value.
There are times where the buyer wants the property so badly and is willing to pay above the appraised value, however in many cases, they would have to come up with extra funds needed for the down payment, required to meet the banks lending guidelines.
Let's look at an example.
Contract Price of Home $400,000
Appraised Value $380,000
Borrowers' Original Mortgage $320,000
Loan to Value 80%
In this example if the contract price was NOT renegotiated to $380,000 the borrower would now have to either:
- Have the loan re underwritten with a loan to value of 84%. The loan would now have private mortgage insurance added to the monthly payment and the borrower could now not qualify for the mortgage and the deal could terminate. The buyer may not want the increased payment, private mortgage insurance brings, even if they could qualify.
- Put down the extra $16,000 to keep the loan to value at 80%. If the buyer does not have the funds to do so, the loan could be declined and again the deal could terminate.
If the Seller and Buyer agree to the lower price then the transaction could move forward after approval from the Bank.
As you can see pricing your home consistent with the market value is so critical to insure a quick sale of your home at the best possible price with the least possible issues.
Want more information about a loan for your new home? Contact John Naclerio of Wells Fargo Home Loans.
Need to know what the True Market Value of your home is? Contact Vanessa for a Current Market Analysis.
Comments (0)Subscribe to CommentsComment