Buying a home causes much anxiety for first time home buyers as well as those with experience.

From the home search all the way through closing, there are multiple hoops to jump through, and a myriad of issues that can crop up to stop you in your tracks.

Some transactions go relatively smoothly and others are a disaster. Sometimes it’s the fault of one of the parties involved, but often just the result of issues with title, the loan, the inspection, and so on.

The market has certainly been a challenge in recent years, and with the increased inventory, lower housing prices, and the large increase in distress properties (short sales, foreclosures, and bank-owned properties or REOs), buyers have lots of choices.

Read: Buying a Short Sale

More inventory does NOT necessarily mean the task of buying a home is easier. Indeed with the stricter loan standards and changing loan programs, the financial side of things has also become a major source of aggravation for some Carlsbad buyers. Making an offer, completing the inspection, and getting the loan commitment are three of the scariest times for buyers, I think. There is now another one.

The appraisal, which is required by the bank to loan you the money, is now a major source of anxiety, especially in some markets and neighborhoods. When home prices are fairly steady, folks were nervous until it was completed, but it did not seem to generate the sort of concern we see today. And rightly so.

With the declining prices, and increasing numbers of distress sales that are selling below market value, homeowners are seeing prices decline in their communities, and appraisals are more frequently coming in low. I had one just recently at 6% below the agreed-upon sale price. And the appraisal 2 months prior was right on target. And I know multiple agents in the area experiencing the same thing.

For homes that are distress sales the appraisal is likely not going to be an issue, especially since the distress must be approved by the lender who will do their own BPO or appraisal. But for the “typical” sale in an area where comparable homes have declined in value, or where there have been multiple distress sales, the risk of a low appraisal is heightened.

What’s a buyer to do?

1. First, do your homework. Learn as much as you can about the local area and past sales. Your Carlsbad agent will help you, and can provide more in-depth information on market values. You will then be able to better assess the value of a home you wish to buy.
   
2. Second, when making an offer be thorough in your review of comparable properties. If you are paying more than the comps you will have a problem. Be especially careful if you find out that there are multiple short sales, foreclosures or REOs that have closed recently.
   
3. Third, limit your time frame to look at comps to about 3 months, depending on the area. Banks are becoming stricter and some will not even consider comps older than 3 months in an appraisal because of the downward shift in prices.
   
4. Finally, be prepared that an appraisal may come in low. The choices then are to renegotiate the sales price, make up the difference in cash (hard to do for many and perhaps with the market that is NOT a prudent thing to do – do you really want to buy a home where the appraised value is much lower?), or simply agree it is not the right home and move on.
   

This is NOT intended to scare, nor should you not buy for this reason. But being a prudent buyer who does the necessary due diligence, and working with a trusted and knowledgeable agent who KNOWS the market will pay off in the long run. It always does, no matter what the market – there’s just more to be careful of these days.

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If I can provide more information about Carlsbad and surrounding areas, or the housing market in general, or otherwise assist you in your homes search, please contact me by phone or text at (760) 840-1360
or email me at JDowler@remax.net.

All content copyright © 2007 Jeff Dowler Carlsbad Homes and Real Estate Tidbits