Appraisals Can Make or Break Your Purchase
First American Title issues a quarterly report, the Real Estate Sentiment Index (RESI), which “measures title agent sentiment on a variety of key market metrics and industry issues”. Their 2015 4th Quarter Edition revealed interesting information regarding possible challenges with appraisal values as we head into 2016.
“The fourth quarter RESI found that title agents continue to believe that property valuation issues will be the most likely cause of title order cancellation over the coming year.”
In a housing market where supply is very low and demand is very high, home values increase rapidly. One major challenge in such a market is the lender appraisal. When prices are rising quickly, it is difficult for appraisers to find an adequate number of good comparable sales (similar houses in the neighborhood that closed recently) to substantiate the purchase price. As a result, many appraisals are coming in with a value less than the agreed upon purchase price.
Another monthly report by Quicken Loans measures the disparity between what a homeowner believes their house is worth as compared to an appraiser’s evaluation. See the difference for each month through 2015.
Real Estate Bottom Line
Think of it this way – every house on the market has to be sold twice; once to a prospective buyer and then again to the lender (through the lender’s appraisal). With escalating prices, the second sale might be even more difficult than the first. Let’s get together and discuss how this may impact the sale and/or purchase of your home.