Why Appraisals and Market Analyses are critical!

I just had a contract fall through. It is really frustrating when a contract falls through because the house does not appraise.

What is an appraisal?

An appraisal is the valuation of a property to determine the market price. It is done by a licensed appraiser who compares recent sales in the area, taking into consideration the location, size, age, and features of the house and its comparable houses.

A market analysis is also prepared to determine the market price of a property. It is prepared by a Realtor (like me) but on a simpler scale, and it also compares location, size and features of the subject property and it's 'comps'.

When the buyer showed interest in this particular house, I prepared a market analysis.

The house was listed at $400,000. The most appealing feature was that it was on a small lake (you could see the shores on the other side) and though older, had been maintained well.

My market analysis found that it was worth around $300,000. That is a big difference! In my comparison, all houses were water-front houses, and all had sold in the last 6 months for less than $100/SF. This house just did not justify the price.

My buyer, however, was very keen. Much against my wishes, we wrote out the contract for a price close to the asking price. I suggested that before he spent any money, he gets an appraisal done. Typically, the bank that he was getting his home loan from would order the appraisal.

The appraisal came back at $320,000!

At this stage, we know that the bank will give a loan for only $320,000. And not a penny more.

We had 2 choices:

1.      The seller drops his price to $320,000, or
2.      The buyer gets a loan for $320,000 and comes up with the difference.

In a market like Los Angeles or Chicago, buyers have been willing to come up with the difference. But in the Columbia market, this does not happen.

Well… the seller refused to lower the price, the buyer could not come up with the difference, so we canceled the contract!

For more details on home buying, call me on 803-348-9922 or email me at vsashikant@gmail.com.

 

Check out all homes for sale in Columbia and Lexington at www.homesincolumbiasc.net

 

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