Ask Phyllis!

Competing In A Seller’s Market

Dear Phyllis,
My husband and I are beginning our search for a new home and I have a question/concern. I understand that many homes are selling over asking price. What happens if the appraisal doesn’t match the higher price? Can I still get a loan? And if the bank will balk at the price difference how can we compete if we can’t offer extra money? Worried

Dear Worried,
I understand your concern. Many homes are being listed at very aggressive asking prices. The low list price creates a feeding frenzy for buyers and the home gets overbids. This doesn’t necessarily mean that a home selling for a hundred thousand over asking price won’t appraise.

It’s extremely important to be working with an experienced real estate agent. It’s your agent’s job to guide you as to how much they believe your offer should be. If your agent hasn’t seen the property, they can’t give you realistic pricing advice. If you are going to an open house and are interested in the home, it’s important that your real estate agent see the home as well (doesn’t have to be at the same time).

Lenders base their loan on the lower of the appraised value or the purchase price. Let’s assume you have $200,000 for the down payment on a million dollar home. The lender will make you an 80% loan based on the purchase price. If the appraisal comes in at $950,000 then things change. Instead of the lender giving you an $800,000 loan they will now only grant $760,000.

You could try to negotiate with the seller, but in our current market that’s not likely. Perhaps you would qualify for a loan with less than the 20% down. If so, you may have a higher interest rate to cover private mortgage insurance (PMI) which insures the lender and not you.

If the appraisal is low, ask your Realtor® to review the appraisal for any glaring discrepancies. I have sometimes seen appraiser’s fail to make adjustments for proximity to freeways, high tension lines, etc. In this instance you can ask the Management Company to request that the appraiser make corrections. Sometimes this will result in a changed value.

  Phyllis Harb