As if the multimillion-dollar housing market wasn’t complicated enough for real estate professionals, the New York Times reports it has become even more challenging thanks primarily to appraisal values that are significantly lower than the parties’ often already agreed upon value.
Appraisers seeking comparative recent sales data on suburban real estate might find themselves facing a daunting pile of multimillion-dollar transactions. Many of these sales could also contain somewhat misleading information due to the current upwardly mobile trend in the overall housing market.
As home prices begin to rise, appraisals in general will most likely come in on the lower end, simply because many of the sales transactions took place in that lower rate period, according to the Times.
Judging “Jumbo” Mortgage Rates
Mortgages of more than $625,000, colloquially referred to as “jumbo” mortgages, often cause lenders to mandate at least two separate appraisals on listings priced at $2 million or more. When these two appraisals produce two different values, lenders naturally tend to gravitate toward the lower one.
Relatively low appraisal values can impact the amount buyers are able to borrow within this jumbo housing market. For example, a mortgage carrying a loan-to-value ratio of no more than 70 percent on a $3 million property would create a loan amount of approximately $2.1 million. Whereas a property with a $2.7 million appraisal value would most likely drive lenders toward that lower value, which in turn would reduce the maximum loan amount to about $1.89 million.
The bottom line for many real estate professionals, experts say, is that a drastically low appraisal value will quite often result in a busted or at least renegotiated deal between buyers and sellers.
But a sharply lower appraisal could mean the death of a deal if it keeps the buyer and seller from reaching agreement on a price. Buyers typically have the option to contest or challenge an appraisal value; however, it is still an uphill battle for them because lenders hardly ever change their minds.
This is filed under Financing.