As the real estate market heats up and prices continue to rise, so do problems with appraisals that could bring it all down. NY1's Real Estate reporter Jill Urban filed the following report on tips on how to handle appraisals.
There is no question that low inventory and high demand are causing prices to climb quickly, but in an up market a big down can be appraisal issues.
"The market shift and the rapid pricing increases has been affecting appraisals because they cant keep up," says Eric Hantman, the CEO and founder of Prime NYC. "There is a three- to four-month lag time from a time when a deal is negotiated to the time it is recorded and can be used as a relevant comp in an appraisal."
A few years ago during the economic downturn, deals fall apart because of low appraisals, but that was mostly because banks were changing regulations and often sending appraisers who were not familiar with the city market.
Nowadays, comparables just cannot keep up.
Hantman says there are some things buyers should know if an appraisal comes in low. First, they should appeal, but if that does not work, then they should have a back-up bank.
"Before you get an accepted offer, speak to multiple banks. Get pre-approval letters from multiple banks, choose the best rate and product for you, move forward with that after you sign a contract," Hantman says. "If the appraisal comes in low and the dispute is not approved, then go to the second bank and get another appraisal."
If that doesn't work or if it's not an option, try to renegotiate the deal with the seller. If they will not budge, a buyer will have to put down the difference. Try to see if someone can "gift" the money or try to work out a loan agreement with the seller.
"If the seller won't renegotiate a deal, you can ask them to do what's called holding paper, which means they make up the difference between the loan amount and the purchase price and you would pay them off like they're a bank," says Hantman. "Let's say you are getting a 4-percent rate from your bank. Ask the seller to hold paper at a 4-percent rate."
This may be a good option for sellers who need to close quickly to buy a new place. Hantman says the best way to avoid appraisal issues is to make sure the broker leaves a folder for the appraiser that includes not only sold and closed comps, but prices in contract if the broker can obtain that information and other comparable listings.
This an issue buyers and sellers could face until prices and inventory start to level off, but as inventory dwindles, who knows how long that could be.