The real estate market is as hot as the summertime weather has been.
The pandemic contributed in a few ways, such as people moving from the cities to the suburbs and apartment dwellers seeking large backyards. In addition, renters are becoming buyers, and millennials are spending their money.
The current market has also contributed to the “waiving” of appraisals and home inspections.
The mortgage company assigns an appraiser after the buyer applies for a mortgage; this establishes the value of the house for the lender. They use similar sales in the area to assess the value of a home.
“With a climbing market, closed sales are often behind the actual value,” said Michelle Rizzo, broker associate and owner of RE/MAX Diamond Realtors, located in Edison and the Kendall Park section of South Brunswick.
If a house comes in underappraised, the buyer may not be able to get their mortgage, depending on their down payment and what their situation is, she said.
“The bank is loaning the buyer the money. They want to make sure the value is there,” Rizzo said.
If they have less than a 20% down payment, they have to pay PMI (private mortgage insurance). If an appraisal comes in low, it affects the buyer. They may have to put more money down or pay PMI.
For example, if a sale price is $510,000, the seller doesn’t want an appraisal at $490,000.
Also, through this process, this could be a time where the buyer tries to renegotiate, Rizzo said.
Waiving an appraisal value could benefit the seller because the buyer would have to make good on the value regardless of appraised value.
“I think it’s somewhat risky. If you’ve got the money you can do it. People are aware; if they really want the house, they’ll do it,” she said.
Rizzo said she has seen this trend over the past year due to the “hot market.”
“It’s a seller’s market, and there is not enough inventory. The seller is getting better terms,” she said. “At this point, buyers are trying to make their offers more attractive to sellers.”
Furthermore, buyers are also waiving a home inspection, or limiting them.
“The buyer will accept the home in its condition,” Rizzo said, “and the seller doesn’t have to worry about renegotiation due to inspection issues.”
Sometimes, buyers look for ways to renegotiate the sale price, be it through the appraised value or the home inspection.
Since the trend has been for multiple offers to come in on a single house, the ball is in the seller’s court.