As home inventory remains low, imagine you finally found the right home for your buyers and they may have had to go in over asking to be the winning bidder. Good news right? Maybe not!
While mortgage rates continue to be affordable, home prices in high demand areas are rising faster than the appraisals coming in. So, if fewer sales are being recorded, is it getting difficult for your buyers to secure financing due to low appraisals?
We asked brokers and agents this very question and were surprised to learn that many of them faced this exact situation with at least one of their clients. Clients that qualified for an 80% loan secured a home at a price that was supported by the rising housing prices only to find out that their appraisal came in lower than their offer price. Since the appraisers are forced to use the most recent comps, that often are stale in this fast rising market, buyers are faced with either having to come in with more cash upfront or losing the house.
A combination of low inventory, increased demand, low interest rates, and all cash purchases are aggravating the situation. Fierce competition for a shrunken inventory has stoked the fires of a bidding war that has these buyers struggling to make the “American Dream” of home ownership a reality.
Some brokers and agents will try to have some impact on which appraisers they are assigned by requesting an appraiser that is in closer proximity to the property for sale. Other agents go out of their way to be present at the appraisal to make sure the appraiser is aware of special, unique, or valuable features of the house hoping for a higher appraisal. But even these actions don’t always produce a positive outcome.
Additionally, price increases are also eating away at affordability. Only 44% of home buyers could reasonably afford an existing median-priced single family home in the state last quarter, the California Assn. of Realtors reported last month. That’s a decline of four percentage points from the final three months of 2012.
Investors continued to play a large role in May, although slightly less than a month earlier. Absentee buyers — mostly investors — purchased 29.5% of homes in May, down from 30.6% in April but up from 27.5% a year earlier.
Cash buyers made up 31.9% of home sales in May, a drop from 34.4% in April and 32.1% in May 2012.
Do you have buyers now on the sidelines waiting for the appraisals to catch up with the rising market? Are buyers being forced to look at less desirable areas to qualify for a loan? What are your thoughts?