Here is a situation that has been playing out all too often in the current market:

An excited buyer comes along a finds a property that they like, they feel it is priced very reasonably compared to the other available comparables. They make an offer, negotiate a sales price and move forward with their plans for financing. Their bank sends out an appraiser, who comes back and says NO DEAL. The house is only worth X.

Everyone stops dead: the buyers won’t budge because they can’t and aren’t willing to pay over market value. The banks won’t lend the buyers the money even if they did want to move forward because there wouldn’t be enough collateral to recoup if the borrower defaulted. The seller holds firm that their sales price was fair. The deal dies and everyone goes home unhappy. Lesson learned: pricing is CRUCIAL. I know I have talked about this in the past and obviously some of the people who need to be reading these types of articles are not.

The local real estate market has faired and is fairing much better then that of other areas so why are we still having this problem. There are a number of reasons why this situation plays out.  1) A seller bought the property which they are selling recently and may have paid a premium for it, therefore needs to recoup more to even break even. 2)The seller may be ill advised to their homes current market value and or disagree with the advice they where given and list it for higher anyways. 3) A seller may not make the appropriate corrections that may be needed to make their listing price stay current as the Market may change. 4)Another seller in the area sells their property for a rock bottom price therefore effecting all the sales prices to follow.

Whatever the reason the banks don’t really care. They are out to protect there financial stability and with that make sure that they are 125% positive that if the borrow defaults, that they won’t be stuck with a liability.

The regulations and guidelines that banks are requiring appraisers to follow are more stringent then ever. Often times these professionals don’t get enough credit for the jobs that they do. Remember sellers: appraisers are third party individuals who are hired by the banks and work for them. They have no interest in the fact that you want the most money possible because that may not be true and current market value. Also if an appraisal comes back low you can almost guarantee that another separate appraisal in the future would give the same results.

Don’t expect that much is going to change in the short run either: most mortgages are held by national lending associations and even local ones typically sell their mortgage products out to national firms. Until the markets; real estate and general financial are 100% stable and remain that way for some time lenders are going to be extremely cautious. As a buyer, seller and or a real estate agent we all need to be aware and try to make sure we take the appropriate steps to avoid situations like the above.