As homebuyers pay more than the listed price, properties increasingly are not appraising out, causing deals to collapse if the price is not renegotiated or the buyer declines to kick in the difference.
About 13% of appraisals came in below the contract price in August, according to housing-data provider CoreLogic. That was down from a recent high of 19.7% in May but above 7.3% in January 2020, a rate CoreLogic said is more typical for the housing market.
“I don’t remember any time where the frequency of buyers being willing to pay so much more than the market data was this high,” said Shawn Telford, chief appraiser at CoreLogic.\
The gulf between contract prices and appraised values highlights the risks to buyers in the current market, especially those stretching their budgets to win a bidding war. Mortgage lenders will typically lend only enough to cover the appraised value of a home.
But are consumers paying too much for homes?
Appraisers say they employ a rigorous approach to valuing a home that over time is more accurate than simply reflecting what a buyer offered during a bidding war. An unbiased appraisal can protect a buyer from overpaying for a property, said Joan Trice, president of the Collateral Risk Network, an organization that includes appraisers and lenders.
“In a frenzied market, it is harder to nail down what value is,” said Jonathan Miller, chief executive of appraisal firm Miller Samuel Inc. But, he added, “just because the appraiser doesn’t agree with the purchase price, whatever the reason, doesn’t mean they’re wrong.”
Still, appraisal issues were a top reason cited by real-estate agents in August for sales in contract going awry. A survey by the National Association of Realtors showed that 12% of contracts that were closed or terminated faced appraisal issues that month, up from 9% in August 2019, before the Covid-19 pandemic sparked a housing boom.
