The market continues to be a hot one in Eastern MA. Homes are continuing to sell very quickly, with multiple offers, and above asking price. As competition drives up home prices, this can sometimes create an issue when it comes to appraised value. It is important to understand potential appraisal issues during a hot market if you are buying or selling a home in Melrose MA or other communities in Eastern MA.
What Causes Appraisal Issues During a Hot Market?
Appraisals involve an analysis of recent home sales. Typically, appraisers select comparable properties that sold within the last 6 months. When home prices are moving in an upward trend, prices of “closed” homes may not fully reflect how high prices are getting for current listings and properties under agreement.
Impact of Appraisal Issues on Melrose MA Real Estate Sales
Appraised value is used by lenders to determine loan amounts. For example, if your loan program requires 3.5% down, then the lender is loaning 96.5% of the home’s value. For a purchase price of $400,000, your loan amount would be $386,000. The $14,000 difference is what you owe for a down payment. The lender will want to know that the home is actually worth $400k, since that’s the value they are loaning against.
In this example, let’s assume that the home only appraises for $395,000 ($5,000 less than purchase price). Your loan amount would therefore be $381,175. That leaves $18,825 for you to pay out of pocket. Essentially, you would need to cover almost that entire difference between sale price and appraised value. This is something that cash sensitive home buyers may not be able to do.
More on Melrose MA Real Estate
As a buyer, there’s also the question of whether you would want to purchase a home that doesn’t appraise for the full purchase price. In such a competitive market, the answer is probably yes. Competition and demand is what drives prices up, and most Melrose MA buyers know that they have to pay a high price to get a home in this market. However, in a normal market, the decision might be much different.