What Are My Options if Home Doesn’t Appraise?

Multiple Offers are Common in San Mateo Homes below $600,000

Throughout San Mateo County– and much of Santa Clara County – I’m again seeing multiple offers and overbidding on single family homes listed under $600,000. Most often it’s the REO – bank owned homes – that are inundated with offers. The distressing part is that I’m seeing clients who need lender financing lose out to all cash buyers.

Most Clients in this Price Range Make 3-5 Offers before Getting an Accepted Contract

I would estimate that in the past nine months my clients who’ve needed finanacing would have to make 3-5 offers before he or she actually wins the bidding war and secures an accepted offer. That’s an indicator of the strong demand being generated in the current market for San Mateo homes in this price range.

To Avoid Rejection, Buyers Offer to Pay More

This means that 3 to 5 times a buyer has fallen in love with an affordable San Mateo home, makes an offer and is rejected. There is only so much rejection the average person can take before looking for ways to be successful. So, when faced with a multiple bid situation many San Mateo home buyers seeking to avoid more rejection, choose to make more aggressive offers. That means offering to pay higher prices and asking for fewer seller concessions.

Which Begs the Question…Will the Property Appraise?

This raises the question: Will the property appraise? It also raises a secondary question: If the property does appraise, will the underwriter reduce the appraised value for some capricious or arbitrary reason? You should know that historically appraisals are a lagging reflection of the current market because appraisers look backward in time.

Understanding the Ramifications of a Low Appraisal

As a buyer’s agent I believe it’s critical that my client understands the ramifications and options should a low appraisal be submitted. I have this discussion with all of my clients because low appraisals are a real possibility in today’s fluid San Mateo real estate market. I counsel my clients about what may happen and how they might handle the situation upfront to avoid surprises. There is enough discomfort and uncertainty about how much to offer when in a bidding scenario.

Consider this scenario: Your offer is accepted and now the lender orders an appraisal, which is simply an opinion of value. Different persons may have different opinions of the value of a home so there is no guarantee that a property will appraise for the agreed upon contract price, particularly when a bidding war ensues. Recently we have seen more than a few properties appraise for less than the contract price. If that happens to you, here are several options.

If The San Mateo Home Doesn’t Appraise, You Can…

• If you have a loan contingency in your contract, you may cancel the contract based on the low appraisal
  
• You can attempt to get a new appraisal from a different appraiser
  
• You can negotiate with the seller to adjust the price to the appraised value
  
• You can pay the cash difference between the purchase price and appraised value, effectively increasing your down payment
  

What if the Property Does Appraise?

If the property appraises for at least the amount of the purchase price – good for you – an independent third party expert has validated the value of the home you really want to own.

If It Does Appraise, that May Not Be the End of the Story

However, more than once I have had the experience of an underwriter undercutting the appraised value opined by a reputable appraiser for some vague and sometimes mysterious reasons. When this happens the best thing to do is submit the loan to another lender. If you have submitted your loan application to only one direct lender, your purchase may be in jeopardy.

When Selecting a Mortgage Advisor, Choose Wisely

Our lender, Chris Williamson, is a multi-platform lender, which means he has access to several different loan programs and lenders so if something like this happens, he can pull your loan from one lender and submit it to another. Don’t put your transaction in jeapordy by choosing the wrong lender. You can contact Chris at (650) 520-0915 or email him at info@SanMateoMortgageBlog.com.

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Raymond Stoklosa, Chela Stoklosa and Rebecca Williamson are Realtors with The RayChel Realty Group specializing in Santa Clara and San Mateo Real Estate.