The fact that residential home prices are increasing is music to the ears of homeowners. However, if you are in the process of buying your home, make sure you are aware of the major challenge a hot real estate market creates. With the recent changes in the market due to the fluctuating interest rates and the inflation that is occurring, it is increasingly difficult to get a 100% accurate appraisal. Most lenders have adjusted to the round-robin selection process of an appraiser. The lender cannot choose their “favorite appraiser” –
Each house must be sold twice; once to you the buyer and a second time to an appraiser who represents the bank that will grant you a mortgage to buy the home (unless it is an “all cash” purchase).
In a real estate market with escalating prices, the second sale may be the more difficult one. The Quicken Loans Home Price Perception Index reveals that the gap between what a homeowner believes is the value of their home compared to the appraisal has widened. It is also because the last several years have seen increased prices often month over month. The appraisers often do not keep up. Even though I cannot influence them or even buy them a coffee or a doughnut, what I can do is provide area comps and market knowledge that they can review.
This could lead to an increase in the percentage of real estate transactions being challenged by a ‘short’ appraisal (where the appraiser’s value is less than the contracted price of the home). There is a solution invariably involving an increase in the deposit.
VA loans where little or no money down is the case make the appraisal even more imperative to get the deal done. And lastly, if you are an all-cash buyer, an appraiser is typically not required and that contingency is often waived to help get the deal. As your buyer’s agent, we still recommend you get an appraisal. We additionally do market assessments for the property of choice.