May 13th, 2018 7:53 AM by Jackie A. Graves, President
Even when a
seller and buyer agree on a price for a home, the deal can collapse if the
property appraises for less than that price.
let’s say a seller lists his house for $325,000, the buyer offers $275,000, but
they settle on $300,000. A week before closing, the appraisal comes in at
$265,000. That’s the maximum price for which the lender is willing to offer a mortgage.
to make up the $35,000 difference?
In this case,
the seller has already come down on the price and doesn’t want to lower it
again. And the buyer may not have enough cash to cover the shortfall, or does
not want to pay more for the house than its appraised value.
As a result,
the deal falls through.
causes a low appraisal
appraisals are common in declining housing markets because the lack of recent
comparable home sales in the area, or “comps,” make it hard for appraisers to
determine the current market value of a property.
sales slow down, good comps “age” quickly. Add foreclosures and short sales to the mix
and appraisals can run all over the map.
Valuation Code of Conduct, or HVCC, which went into effect in May 2009,
compounded the problem. The HVCC prohibits Fannie Mae and Freddie Mac lenders
from having direct contact with appraisers.
As a result,
most lenders work through appraisal management companies, or AMCs, whose pool
of residential appraisers includes those with limited training or little
familiarity with the geographic area being appraised.
how to protect yourself
protect yourself from low appraisals. Here are some suggestions for buyers
If you’re a
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