Leon Springs Community News - March 2018
Appraisals – The Real Estate Industry’s ‘Four-Letter’ word – The Buyer’s Dilemma
Last month I spoke about Real Estate Appraisals and how they affect the seller. This month, I am going to focus on what they can mean to a buyer.
Remember, an appraisal is an independent, professional opinion of value based on several types of property factors. From a buyer’s perspective, their dream home needs to appraise for the contract purchase price in order to get their loan. So, a low appraisal most likely will affect the sales contract!
Lenders use the appraisal to-determined the "value" part of your mortgage's loan-to-value (LTV) calculation. Usually, unless the seller agrees to lower the price, you will have to increase your own down payment to receive loan approval.
So, low appraisals can cause a few things to occur:
You and the Seller renegotiate a new, lower sales price.
You increase your down payment to meet new LTV and down payment minimums.
Either you or the seller requests an appraisal rebuttal; or,
You cancel the contract, and find another home.
In Texas, sales contracts requiring a mortgage are written with a Third Party Financing Addendum. The addendum’s property approval contingency allows you to cancel the contract and retain your earnest money, if your dream home fails to appraise for the contract price, or has lender required repairs. In fact, certain loan types, REQUIRE this contingency.
Buyers should NEVER waive this contingency, because it negates any negotiation leverage that they may have if the home appraises for less than contract price.
Remember, avoid the pain of a low appraisal – hire an agent to help you negotiate a fair price for the home of your dreams.
Gina M. Sohmer, is a veteran, a 2nd-Generation REALTOR®, a Graduate of the REALTOR® Institute, a Seller’s Representative Specialist, an Accredited Buyer's Representative, and a member of the Phyllis Browning Company. You can reach her at 210-608-0650.