Real Estate Analysis and Commentary in [CITY]

Should you ever pay more than appraised value for a home?
February 28th, 2024 10:40 AM

When buying a home, receiving an appraisal that comes in lower than the agreed upon purchase price can be disappointing. As a buyer, should you consider paying more than the appraised value? There may be some scenarios where it could make sense, but there are also significant risks to consider.



Reasons to Potentially Pay Over Appraised Value:


Competitive Market: In hot housing markets with few properties and bidding wars, appraisals sometimes lag current sale prices. Paying over appraised value may be necessary to win the offer.


Sentimental Value: The home has intrinsic value to you beyond investment, like where you want to raise a family. Being flexible on price is reasonable in these cases.


Room for Future Appreciation: In a growing area, the appraisal may undervalue long-term potential if recent comparable sales aren't reflective yet.


Low Appraisal Amount: A modest 2-3% over appraised value is less risky than 10% or more, assuming your research supports the higher value.


Reasons Not to Pay Over Appraised Value:


Lender Refusal: Mortgage loans can't exceed the appraised value without you paying cash for the difference or the seller accepting less.


Overvalued Property: The home may actually be worth the appraised value, and overpaying could lead to owing more than it's real worth.


Appraisal Concerns: Issues identified like needing repairs may validate the appraisal figure and not get addressed if you pay over.


Underwriting Risk: Lenders see properties valued correctly as lower credit risk. Paying too far over could affect loan approval or rates.


Seller Pressure: Don't feel forced by the seller into paying a clearly inflated price you'll regret long-term. Stick to rational offers.


Lack of Inspection: There may be undisclosed problems an inspection would find, making a high price unjustified.


The Bottom Line:


In competitive markets or with clear upside potential supported by your due diligence, paying modestly over an appraisal could make sense. But generally it's wisest not to overpay, as that introduces risks like owing more than the home is worth, inability to get financing, or getting into a poor investment. Communicate openly with your lender and appraiser if needing to negotiate over the assessed value.
Posted in:FAQ's and tagged: FAQ's
Posted by Genie Motto on February 28th, 2024 10:40 AMPost a Comment

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