Nicole Friedman at The Wall Street Journal writes that as housing prices have soared this past year appraisals haven’t always kept up with the new elevated prices…(Wall Street Journal)
Why does this matter? Mortgage lenders will typically lend only enough to cover the appraised value of a home. So when an appraisal comes in below the contract price, “the buyer has to make up the difference, renegotiate the price or let the deal fall through.”
How big of a problem is it? According to CoreLogic, about 13% of appraisals came in below the contract price in August. That was down from a recent high of 19.7% in May but above 7.3% in January 2020.
What are buyers doing to fix this? Some buyers are forgoing an appraisal. One-fourth of buyers waived their appraisal contingency in August, down from 29% in June.
- However, according to Phoenix area real agent Nicole Dudley, “many buyers are plunking down payments of just 5% to 10% because they need extra cash available in case the house is appraised below the sales price.”