Sometimes, Appraisals Are Reining In High Contract Prices, And That Can Keep Sales Prices From Getting Out Of Hand
Scott P. Rogers
Let's say there's a house that comes on the market for $300K. Every Realtor and buyer that looks at it agrees that it is worth $300K because three identical houses sold the prior day for $299K, $300K and $301K. ;-)
The house immediately has LOTS of interest, LOTS of showings and LOTS of offers.
The house ends up going under contract for $335K.
Wow!
Now, a few things can happen from here...
- If the buyer is paying cash, there usually won't be an appraisal, so it doesn't matter that the buyer is potentially paying $35K above market value.
- Maybe the winning buyer agreed to pay $335K regardless of the appraised value. In such an instance, the house will sell for $335K even if the appraisal comes in at $300K or $305K.
- Perhaps the winning buyer agreed to pay $10K over the appraised value, so if the appraisal comes in at $300K or $305K they will be paying $310K or $315K, not $335K.
- But quite possibly, the contract is contingent on the property appraising at or above the appraised value, in which case a $300K or $305K appraisal is likely to rein in that high $335K sales price -- bringing it down to $300K or $305K, unless the buyer and seller negotiate towards meeting at some price between the appraised value and contract price.
So -- even if buyers are willing to (per their offers) pay higher and higher and higher prices for houses -- regardless of what other buyers recently paid for similar houses -- the appraisal process is still, often but not always, keeping things in check and preventing prices from skyrocketing too quickly.
