The News and Observer in Raleigh has headlined multiple times that most Urban areas in North Carolina are now considered a “Sellers” Market. It’s an interesting position for Sellers to be in, because in many cases, there are multiple offers on homes, (especially those with prices under $300,000). This bidding war is also causing borrowers to receive a low appraisal.
Another in higher sales prices in NC, is New construction. Builders are reaping the benefit of home buyer demand, and they are raising prices every few months.
While that certainly pushes home prices for both “existing homes” and new construction up, it can also create a “false market” that appears to lack sustainability.
Appraisals are driven by solid data, not recent trends and short-term shifts in the market… because of this, a low appraisal will often occur when there are not enough CLOSED loans to support the recent bidding “wars.”
If an appraisal comes in low, a rebuttal can be requested but new information must be brought in from other reliable sources.
A low appraisal report does not mean that the appraiser did a poor job.
We usually find that the most recent closed sales (commonly referred to as comparable sales) have yet to catch up with the current market.
“There are cases where a home comes in at a value lower than it should because the appraiser has made a clerical error in their report causing the value to follow suite.
It could be something as simple as the square footage of the home being off or the appraiser not giving an appropriate value to a superior location that your home resides in.”
When a buyer is faced with a low appraisal, there’s an immediate decision that must be made. The lender must base your loan amount on the LESSER of the Contract Price, or the Appraised Value.
If you want to get a FHA loan, which requires 3.5% down payment – and your Sales Price is $200,000, the maximum loan you can apply for is $193000. If you receive a low appraisal of $185,000 – then the maximum FHA Loan you can apply for is $178,525.
You would need to find the cash to make up the difference. That’s a $14,475 difference!
There are options for home buyers:
- Cancel the contract
- Negotiate a lower sales price
- Both sides can meet in the middle
- Ask the lender for a second appraisal to be done
- Bring cash to closing to make up for “deficit” amount
When the demand for homes is far greater than the supply, it creates a huge competition for buyers. The Seller can just say, “Next!”
New Home Builders may also be less inclined to negotiate in today’s market, especially if there are many offers on a home or a lot of potential buyer interest in their product.
This is why we stress the importance of having a great Realtor represent you in these negotiations! If you end up with questions about an Appraisal, they will help.
ESPECIALLY if you are also trying to negotiate a sale where you are asking for a Seller Contribution!
Seller contribution is a fancy way of saying a part or all of the closing costs are paid by the party that is selling the property. This could be a builder, a home owner, or the bank.
For example, a seller could “contribute” or pay up to 3% of the real estate closing costs on behalf of the buyer.
Simple, right?
If you are not working with a Real Estate Professional, you might not know how this should be worded, and negotiate a contract that says (for instance) Seller will pay $3000 in closing costs.
Doesn’t seem like much of a difference on a $100,000 loan… right? 3% of the Sales Price is $3,000.
However different loan programs have a cap on the amount the seller can pay – and at the last-minute, you could be required to pay more than you’d expected!
Seller Contributions are ALSO used to establish the Appraised Value of a home, and in many cases, we’ve recently seen a low appraisal because the Seller Closing Costs were too high.
The value of a home is still based upon what someone is willing to pay, and a savvy agent can offer help to weigh the options when an appraisal comes in low.
First Time Home buyers also need to watch for a variety of conditions of the home – as the condition of a home factors into the Appraisal of a home too.
Will you need to have extra money after closing to re-carpet? Is the air conditioning unit on its last leg?
These are items that you need to review from the home inspection. Sometimes an insurance policy can be taken out that will cover major appliances and systems for you.
If you have questions about buying a new home in NC, or have questions about a low appraisal on a home in NC – please call Steve and Eleanor Thorne 919 649 5058.
Many very good New Home Builders want you to use “their” mortgage person for a home loan. Often times, we can offer you a better deal than the one offered by the Builder’s Mortgage Guy.
ALSO, not all lenders in North Carolina offer the Mortgage Tax Credit (MCC) program through NCHFA. As an approved lender, we can help those who qualify obtain a tax credit that adjusts how much income you bring home, helping you qualify for more upgrades! Call Steve and Eleanor Thorne 919 649 5058.
Are there any rules for North Carolina governing mortgages for buying a property where the sale price is less than the apprised value? For example, the appraisal comes back at $300,000, but the sale price is $250,000.
Well, depending on how the contract is written – there could be. In that example, if the contract is for a government loan, there should be a FHA/VA Addendum signed by all parties. If you have questions, give us a call, we are glad to be a resource. 919 649 5058