The Property Under Appraised
In the North Metro areas of the Twin Cities appraisals have been coming back fine in most instances. The biggest challenge I have had in the last 6 month is on Townhomes. Many of those appraisal have came back in slightly low.
The challenge is that the market has been coming up but for townhomes there are normally exact homes that are recent sales that sold for less, so appraisers wont give any bump for the rising market. On single family non townhomes there are normally homes that they figured out how to stretch the price up due to other homes that sold for higher even if that other home was a better house.
Thus, this is going to be an on going issue on townhomes in cities that dont have a lot of townhomes.
As a Loan Originator four words I do not like to hear are The Property Under Appraised. I am lucky I have not heard these words much in the last couple of years. One major reason why I have not heard these words much, is because most of the Realtors I work with are excellent at what they do. These Realtors are very good at making sure their Buyers do not offer more for a property than they can find comps for. So I have not been hearing The Property Under Appraised very often. However, I am starting to become concern about hearing those words again in the near future.
Here in Connecticut we are not in a Seller's Market yet, but as we move closer to one hearing The Property Under Appraised maybe become more common. Even though we are not in a Seller's Market, I am beginning to see a lot more full price offers, and when we enter a Seller's Market offers above asking price will most likely begin to occur. When this happens the words The Property Under Appraised will not be unusual until Appraisers start making upward adjustment for a rising market.
When properties begin to under appraise, it will become necessary for me and the Realtor to prep our Borrowers/Buyers for what they may need to do if they really want the property. When a property under appraises there are normally only four choices:
- The Seller comes down to the appraised value.
- The Seller and Buyer agree to split the difference the property under appraised for.
- The Seller will not come down to the appraised value and is not willing to split the difference with the Buyer. But the Buyer really wants the property so the Buyer absorbs the full difference.
- The Seller will not come down to the appraised value or split the difference, so the Buyer walks away from the property.
I always go over these choices with my Borrowers who are doing an FHA or VA Loan. On these two loan programs the Buyer and Seller have to sign a disclosure stating the Buyer has the right to receive their earnest money (deposit) back if the property does not appraise for the amount listed on the disclosure. However, I may soon start to explain the four options above even on other loan programs.
Lenders will only lend up to the appraised value of a property minus the required downpayment, except for VA, and USDA loans which are no money down loan programs, and the Borrower is allowed to roll in the Funding Fee. However, even VA and USDA will not fund a loan beyond the appraised value, plus the funding fee.
The Property Under Appraised are words I do not like to hear, but when these words start to be heard, I will make sure my Borrowers are prepared for them when it happens.
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Info about the author:
George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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