Appraisals and Market Summary

Dated: April 14 2021

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Welcome to this month's blog, where I want to discuss Appraisals and the recent Market Report.

Image courtesy of Pixabay


One of the most challenging stages of Real Estate transactions in the current market is the Appraisal process.

With tight inventory, some buyers are tempted to offer well above the listed price of a property.  In fact, it's a common occurrence, so we should address some of the options and risks associated with this.

Let's start with the basics:

If a buyer is obtaining a loan, in nearly every case the Lender will require an appraisal of the property to ensure that the money they will be lending is warranted.  The appraisal order is placed into a system and an Appraiser takes the job.

The Appraiser assesses similar sales in the area and makes value adjustments for things such as condition, square footage, lot size, etc.  They arrive at an estimate of value.

They may also be looking for various unsafe conditions or non-working appliances when the buyer is obtaining an FHA loan or Veteran's Loan.

The Appraisal Report is sent to the Lender, and if any issues are raised, the Agents will be notified.

  • An appraised value which is less than the price on the purchase contract leads to several options:  If the report has obvious errors or there is a reason to challenge the results, the Realtors, especially the Listing Agent, need to communicate with the Lender to provide evidence that warrants a re-evaluation by the Appraiser.

  • Assuming the value is not adjusted and remains low, the Seller may reduce the price to the appraised value; they may negotiate with the Buyer to meet at a new price somewhere in between the appraised value and contract price (meaning the Buyer pays some extra money at closing); or the Buyer can terminate the purchase if neither of the previous 2 options happen.

  • Items that could be called out by the Appraiser such as peeling paint or cracked windows will need to be addressed in order for the loan to proceed and the home to reach the closing table.

  • When NO appraisal issues are raised and the value meets or exceeds the offer price, the deal moves forward.

On to the topic of offering over listed price:

When a Buyer puts in an offer that is likely higher than what an appraisal will support, the Listing Agent will educate their Seller that the options outlined above can come into play, and a Buyer who doesn't have any extra funds to contribute at closing may be likely to terminate.  This is not a solid offer.

When a Buyer puts in that same high offer but includes language in their offer stating they will indeed cover some or all of the appraisal 'gap' as it's often called, and can produce proof of funds for the amount, the offer becomes much stronger.

A Buyer who is not using a loan at all but is doing a cash purchase instead, may decide to waive their right to an appraisal altogether.  Remember that an appraisal is not the same as a home inspection, so even if an appraisal is waived, there may still be negotiations to deal with over inspection reports.

One alternative to offering well over the listed price, is to offer paying many of the Seller's closing costs.  This will save the Seller money at closing and ultimately may mathematically equate to a similar profit to the Seller without risking an appraisal gap.

The discussion above is just an introduction to the world of competitive purchases that we're seeing right now, and each situation will differ depending on the Buyer's finances.

Don't risk having your transaction fall apart over the Appraisal.  Have a Realtor at your side to guide you through the many fine details and options available that will serve you best!

The March 2021 Real Estate Market Report is here:

Highlights (the highlights are a comparison between March 2020  and March 2021)

  • the median detached home price rose 13.7 percent to  $270,000
  • the average detached home price increased 13.0 percent to  $311,287
  • the overall inventory of detached homes for sale decreased 69.2 percent to  608

Full details are on our Greater Albuquerque Association of Realtors website HERE.


Thanks for reading and have a wonderful day!

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Lydia Shewchuk

Lydia was born in Canada and spent the majority of her years in Calgary, Alberta working as a Physical Therapist. When Lydia and her husband Kevin chose to relocate to the US and the time came to se....

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