Financing is the key to affordability and that means that property appraisals will factor into most real estate sales. In a residential sale, shortly after a contract is signed, an appraiser comes out to physically inspect the property. Most appraisers use the Sales Comparison Approach to determine a value for the home which compares the home for sale to similar nearby homes that have already been sold. This comparison includes factors such as lot size, livable square footage, style of house, and property condition along with amenities.
The new appraisal rules that recently went into effect, seem to be affecting valuations and delaying settlements. In a recent article, the National Association of Realtors Chief Economist Lawrence Yun, stated that many appraisers are not distinguishing between traditional homes and distressed properties (such as foreclosures and short sales) in their property comparisons. This is a major factor because distressed properties typically sell for 20% less than normal homes in the same area. Another issue is that sometimes appraisers are hired from outside the area and have “little knowledge about the local real estate market,” according to Yun. This can result in homes appraising for substantially less than they would if an appraiser familiar with the area evaluated the home.
Appraisals are also affecting the timeframe for loans to be closed. When reviewing the loan the underwriter will scrutinize the appraisal and may request that a second appraisal be completed, costing the buyer more money and often postponing settlement.
This is especially important to First-Time Buyers thinking about taking advantage of the $8,000 Tax Credit. Since time is of the essence to meet the November 30th deadline, any delay in settlement could result in a loss of this opportunity.
If you are thinking about buying a home, attend our FREE Home Buying Seminar and learn the process so that you can make good decisions.
Wishing you sunshine everyday and the home of your dreams,
Jeri
