Rapid appreciation in DFW -- what if house doesn't appraise

8 Replies

We are thinking about putting a house on the market in DFW (updated starter homes are going in hours under multiple offers) and I am pretty sure financing bank's appraisal is going to come in at less than what a buyer is willing to pay for it.

We're not going to lower the price to accommodate bank financing when it's such a hot seller's market (unless we have to, and I don't think we do), so do you think I need to communicate that in the listing, or just let agents know?

You should be upfront with that. It's better to screen out people who cant close early, rather than being 2 weeks into escrow finding out that the person can't close.

They appraisals that I've dealt with have kept up with the quick appreciation.

@Jeff Richardson That would be awesome! But we just got an appraisal on our personal home for a refi and the appraiser primarily used an 8-month-old comp and said the market in our neighborhood was "stable." So I officially don't trust appraisers.

Recent comps support the sales price I plan on for this investment house, however, there aren't many comps, because inventory is nonexistent.

Why should a buyer pay more then the appraisal?

Joe Gore

@Joe Gore I don't understand what you are getting at. Can you explain why a seller shouldn't list/sell for what the market will bear? Do you consider the appraisal process to be flawless and the sole guide by which we should conduct our transactions? Thanks!

A seller can list their home at any price they want but if the buyer is getting a loan there will be appraisal done and the bank will only loan on the appraisal amount. Now if the appraisal come in at lets say $10K more then you are asking then I am sure you will not jack your price to match the appraisal.

Joe Gore

Originally posted by @Jessica G. :
We are thinking about putting a house on the market in DFW (updated starter homes are going in hours under multiple offers) and I am pretty sure financing bank's appraisal is going to come in at less than what a buyer is willing to pay for it.

We're not going to lower the price to accommodate bank financing when it's such a hot seller's market (unless we have to, and I don't think we do), so do you think I need to communicate that in the listing, or just let agents know?

Having a creative lender on your team can help alleviate this by pre qualifying the buyers and structuring the financing to ensure that both buyer and seller can come to an agreement even prior to the potential appraisal issue.

For instance if you were listing your property for 300k and the buyer was originally coming in at 20% down payment($60,000) because they wanted to get rid of mortgage insurance and your appraisal came in at 285,000, the buyer did not have 20% of 285,000 ($57,000 down) and the difference of $15,000 extra cash to pay your price of 300,000. You could structure it as 80% 1st TD, 10% 2nd TD, and 10% down payment which would only be $30,000 down. This would allow the buyer an additional 30,000 to be able to pay the 15,000 gap in your appraisal plus the closing costs.

Yes, the buyer would have a higher payment in the above scenario, but if they want the home bad enough they will follow through with the offer. When I am working in these situations I'll usually work with the seller to determine that the buyer not only qualifies "financially," but also "emotionally," and willing to move forward with these payment options even before an appraisal is ordered so that "if," it does happen the deal is still solid and we have a closing to be realized.

Hope for the best, plan for the worst.


Originally posted by @Jessica G. :
@Joe Gore I don't understand what you are getting at. Can you explain why a seller shouldn't list/sell for what the market will bear? Do you consider the appraisal process to be flawless and the sole guide by which we should conduct our transactions? Thanks!

Appraisals are lagging indicators and do not indicate the current price at which a buyer and seller are willing to agree upon in the market with out additional incentives. The appraisal is actually a set of guidelines that the loan/note investor sets up to determine value in their eyes so that they can reduce their risk when deciding value for the purposes of obtaining a loan.

This "value," is different than the going price in the market right now.

There are a uniform set of appraisal practices for which appraisers have to abide by. The better indicator of what a buyer and seller is most likely to agree upon with regards to a sales price in a particular neighborhood would be to obtain a BPO or brokers price opinion.

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