First-timers missing out because appraisals lag values
DALLAS – July 26, 2017 – After Dallas-area real estate pro Laura Barnett put a listing on the market three weeks ago, it quickly received 22 offers. But Barnett didn't take the highest bid. Instead, she took a cash offer because she wanted to ensure that there were no hang-ups along the way toward closing. Appraisals, she says, aren't keeping up with sales prices, and if the appraisal doesn't match the contracted price, buyers often can't get a mortgage and never make it to settlement.
"They're kind of putting a glass ceiling where we can't raise our prices any higher than we have comps to support it, so we're definitely going with more cash offers than we used to," Barnett, a real estate professional with RE/MAX DFW Associates, told CNBC.
Younger, first-time buyers are feeling the brunt of the competition because they tend to be more mortgage-dependent and use low downpayment loans, which have stricter underwriting standards.
As a result, a first-time buyer may submit the highest bid for a listing, but if the mortgage lender's appraisal comes in even a slight bit under the contract price, the mortgage financing – and the real estate transaction – can fall through.
"Anytime prices move up fast, the actual appraisal process – because they're looking back in history, not forward into the future" can lag behind, says Lawrence Yun, chief economist at the National Association of Realtors®(NAR).
"From the buyer's perspective," says Yun, "it's a tough situation where they want to rely on the value of the home, on the appraisal, yet they know that if they decide to back away, there are other buyers waiting to pounce."
Source: "This House Had 22 Offers. Here's Why the Owners Didn't Take the Highest," CNBC (July 24, 2017)
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