When the high rate exceeds the valuation in the hot housing market



Housing demand in Bucks and Montgomery counties has skyrocketed this year as the local economy struggles to pull itself out of the pandemic. Over the course of several months, wars between buyers have raised prices to unprecedented levels.

“Buyers are greedy and desperate, which is not slowing market growth,” said Alex Schneider, real estate attorney and agent for Re / Max in Fisterville.

the property: the property

But since many buyers are bidding higher than the asking price, some of the valuations that help fund these hot market deals are too low to get a deal. What should the buyer do if the valuation required for the mortgage does not match the price they are offering to the seller?

Realtors and mortgage brokers agree that this is not an easy question. And the one that can stop the sale.

“I had a few sales where people overpaid, and then when the estimate came in, they had to come up with an extra $ 30,000 to $ 40,000,” said Jill Kohler of Net Equity Financial in Langhorn.

Mortgage obligations are based on the assessed value of the home. A lender may not agree to finance a purchase if the money needed to complete the sale exceeds the value of the home in the eyes of an experienced appraiser sent by the mortgage company to verify the property.

For example, if a buyer offers $ 300,000 for a home, but he only values ​​$ 280,000, the lender may agree to provide money only to complete the transaction for that amount. The buyer will have to provide an additional $ 20,000 to settle the dispute, otherwise he will lose the house.

“Several people canceled the deal because the assessed value did not match the price,” Kohler said.

And house prices are only rising in Bucks and Montgomery counties.

IN Long & Foster Market Minute shows that the average home price in US dollars has risen from $ 340,000 in June last year to $ 420,000 this year, up 24% at an average selling price of 101.5 percent of the asking price. In June, the number of homes for sale remained low at 763, although it was up 13% from 673 in May.

In Montgomery, the median selling price was US $ 380,000, 15% higher than the June 2020 median selling price of US $ 330,000. The median selling price was 102.2% higher than the asking price, and the number of homes for sale was 1,054, up 10 percent. up from 962 available in May.

Looking back at the 2020 market: With historically low mortgage rates, this is a seller’s marketplace as buyers search for homes.

Concerns about valuations in the market, driven by bidding and bidding wars, prompted the Pennsylvania Association of Realtors to submit a new “Contingency Sale Addendum” form July 1 to help drive sales.

The form now offers two options for shoppers facing this dilemma.

They can either agree with Option 1, which says that if the score is too low, they will abandon the deal, or renegotiate it with the seller, or Option 2, which basically means that even if the score is low and they need to find other means , they will start selling.

“(New) Option 2 is about allowing buyers to signal the seller very convincingly that they want to move the deal in one way or another,” said Hank Lerner, attorney for PAR. This way, sellers will not have to worry about buying a bid if the valuation is lower than expected.

PAR President Christopher Raad said the government held webinars with realtors to explain the options so their buyers know which one is best to choose – “what works best for them.”

Kohler also said that people buying a home should have an income based on their wages, not unemployment benefits. Because of this and the COVID restrictions, many people put off buying a home last year, but this year the market really caught fire as workers got their jobs and could qualify for mortgages.

The number of homes for sale has also increased slightly over the past month, Long & Foster noted, as sellers who may have been hesitant during the pandemic have decided to list their homes on the market as they are likely to approach or exceed their asking price.

Lenders typically approve mortgages based on the sale price or valuation, whichever is lower, but “many new buyers have no cash on hand if they need it to continue selling when the valuation gets low and the mortgage company limits the amount loan that they will finance. The buyers who made the exchange will have cash, ”Kohler said to be more creative in trying to resolve the situation.

Since interest rates are still very low – around 3% for a 30-year fixed rate mortgage – mortgage lenders are also busy with refinancing deals that also involve valuation.

Maureen Fox, a Doylestown appraiser, said she knew that “people are absolutely bargaining at the asking price, but she said that when doing the appraisal, she could only agree that the market will hold up. Appraisers base their valuations on, among other things, comparable homes sold in the past six months.

Fox explained that mortgages are based on a loan-to-value ratio, and cost is an assessed price, not an offer price.

“If the market does not support the selling price, there is nothing I can do. I’m hired by the lender, not the borrower, ”Fox said, although lenders include the cost of the appraisal in their mortgage fees. borrowers.

Bob Hawley, a realtor at Long & Foster in Yardley, said that in most cases, the lender will allow the buyer to make a lower payment to the mortgage company and increase the monthly mortgage payment to make up for the difference.

“It’s really not a big problem,” he told many buyers.

Fox admitted that neither real estate agents nor buyers like it when the valuation is below the asking price, and the buyer has a hard time finding the additional funds needed. This is especially true of newbie buyers who may have already used most of their disposable income for the down payment and closing costs.

Schneider said that every buyer should know what they can actually afford to spend on paying off their mortgage before making an offer to buy a home.

“Know your plan, your limits, and know what Plan B is,” he said, whether it’s getting cash for the extra money you need from a relative or looking for another home that will make the purchase easier and more affordable.

And if you are selling your current home, as most sellers are reluctant to accept offers from buyers who have to sell their home anyway, know where you will stop temporarily if the deal falls through and you need to look for another home.

“Rent is hard to find,” Kohler warned, because so many people are trying to close deals now when interest rates are low.

The good news is that there are many homes for sale in Bucks County at varying prices, Fox said.

“I strongly believe that location is so important. There are many good places to find in Bucks County, ”she said, even if the shopper has to choose an outer garment with anchorage material or travel a longer distance to work. to get a home that they can afford.

And since the valuations are based on recently sold homes in the same area, property values ​​could rise as well, she said.

Ironically, Fox said that she and her husband had to pay the seller an additional $ 30,000 out of pocket to keep the deal when the valuation of a country house they were buying on the New Jersey shore fell below their bid.

After a couple of months, prices began to match the price she paid, so she felt like she was getting a great deal. “I don’t regret buying a house for a minute,” she said. “I love it.”

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