A.K.A. Why you may not be done negotiating after the Home Inspection Period is Over!
Posted: 24 May 2011 04:00 AM PDT
Banks have become very conservative when lending mortgage money today. With the current foreclosure challenges in the country, we can’t really blame them. The requirements now necessary to qualify for mortgages have gotten much more stringent and it seems will get even more stringent as we move forward. The banks want to make sure the prospective buyer has the ability to repay the loan. However, this does not just involve the borrower buying the property.
The second way a bank can protect their investment in the mortgage is to make sure that the collateral backing that mortgage is secure. That is where the appraisal comes in. The bank wants to make sure that, should the buyer not be able to make their payments, the house they will be forced to take back will sell for an amount at least equal to the balance left on the mortgage. For that reason, the banks seem to be getting more conservative with appraisals also.
This past week, the National Association of Realtors (NAR) released their Existing Homes Sales Report. In that report, they said:
“11 percent of Realtors® report a contract was cancelled in April from an appraisal coming in below the price negotiated between a buyer and seller, 10 percent had a contract delayed, and 14 percent said a contract was renegotiated to a lower sales price as a result of a low appraisal.”
One out of four real estate transactions was either cancelled (11%) or renegotiated to a lower sales price (14%) because of a low appraisal!!
What does this mean for a Seller? That you may finally have had a “meeting of the minds” for a selling price for your home and you then may have to adjust your home’s selling price depending on what a Home Inspection may uncover and you are still not set to cross the finish line with negotiations until you are certain that the Appraisal comes in at a high enough figure to allow your buyer to cover their mortgage amount. So, if your home has an accepted offer for $500K and the Appraisal comes in for less, you can expect your buyer will try to utilize this value to adjust the price they will be paying you. The buyer’s leverage is increased when they are putting less down, let’s say an FHA’s 3.5% down, as then most of the price they are paying will be in the form of the mortgage and the mortgage amount has to be more than covered with the newly appraised value. MARK SLADE
Every house now has to be sold twice: first, to a potential purchaser and then to the bank appraiser. And, it seems that the second sale may be the more difficult of the two. Sit with a local real estate professional and make sure you put together a plan for both sales. This may also help guide you to take the an offer that is more cash friendly and less mortgage friendly.