With limited inventory (especially in the entry level market place) and first time buyers scrambling to find, offer and close escrow by the end of November, competition is fierce and brutal. So multiple offers are common and frustrated buyers are having to offer more (sometimes a lot more) to get an accepted offer. So why are appraisals causing sleepless nights?

The appraisal industry has come under intense scrutiny and been blamed by Congress for aiding and abetting the housing crisis through inflated appraisals.

In May, the two largest government organizations (Fannie Mae and Freddie Mac) that form the backbone to the secondary market, instituted new guidelines (the Home Valuation Code of Conduct or HVCC) that have created great controversy in the real estate industry. Driven by good intentions, it nevertheless has created unintended consequences that are beyond this post. Here’s a link that goes into that.

But what home buyers today need to know is that appraisers work on old data – deals that have already closed escrow. Those are deals that may have come on the market up to 3 months ago, but buyers are fighting the here and the now and thus often times find that their appraisal lags today’s offered prices.

Frequently we see closed deals today that closed over asking price. Leslie is working with clients that have lost out – even though they offered more than the asking price.

So what happens when a buyer has an accepted offer, but the appraisal comes in low?

A buyer is always financially protected in making an offer, because one of the conditions of their offer is that the property appraise for the contract amount. But say it comes in $10 – 20k or more low?

The buyer can still do the deal, but their lender will only lend based on the appraised value and that means the buyer has to come in with more cash to make up the difference.

That’s what we’re seeing today in today’s marketplace!