The house is sold but will it appraise? 2021-10-15
Gulf Coast Real Estate Update
October 15th, 2021
The house is sold but will it appraise?
This year a record number of deals have fallen through due to appraisals not meeting the agreed upon contract price. In some months 19% of appraisals came up short according to a CoreLogic study of the US market.
Mortgage lenders agree to lend a percentage of the sale price or the appraised value whichever is lower. If the appraisal comes up short, the buyer can make up the difference with a higher down-payment or may cancel the contract based on a mortgage contingency. When home prices are rapidly appreciating recent sales of comparable properties don’t keep up with the market. For example, if home values are going up 18% annually that’s 1.5% per month. Appraisals are based on recent closed sales so if a property gets listed in June goes to contract by the end of the month, then stays in escrow for 30 or 60 days you’ve got nearly three and a half months before that property becomes a comparable sale that can be used in an appraisal. Then it will be a comparable sale for another 90 days going forward. These factors alone can easily make an appraisal come in short by 5% to 10% of the sales price.
It’s interesting because a record number of deals are actually closing for cash here in Pinellas County and cash deals don’t require an appraisal. In last 30 days 40% of all residential transactions in Pinellas County closed for cash. In our beach communities the numbers are even higher with 57% of all deals selling for cash. So, cash buyers are making the market and the appraisers are struggling to keep up.
Source: CoreLogic
Mortgage Rates Surpass Three Percent
The 30-year fixed-rate mortgage rose to its highest point since April. As inflationary pressure builds due to the ongoing pandemic and tightening monetary policy, we expect rates to continue a modest upswing. Historically speaking, rates are still low, but many potential homebuyers are staying on the sidelines due to high home price growth. Rising mortgage rates combined with growing home prices make affordability more challenging for potential homebuyers.
