Appraisals. It was a foreign word to me before becoming a Realtor, and yet now I see how much it rules the game of real estate. In 2008 at the height of the real estate bubble, appraisals helped send the market crashing down. With the market swinging back up and buyer confidence climbing, appraisals are keeping everyone level-headed.
The appraiser's job is to determine a fair sales price for a property, ensuring the buyer doesn't overpay and the seller doesn't over sell. In essence, your bank needs them to make sure they aren't giving a loan larger than what the home is actually worth.
Realtors also determine a fair sales price. So why would a Realtor and an Appraiser draw different conclusions on the price? Because of supply and demand.
Currently in Charlotte, NC, and many other places across the country, inventory is low. With fewer houses to choose from, buyers are getting into bidding wars over the houses that are available. These bidding wars, or multiple offer situations, send the sales price high over the original asking price. The highest bidder goes under contract on the house, soon to have the Appraiser come in and force both parties to lower the price to a more realistic value of the property.
Sellers are generally expected to lower the sales price to the appraisal value. Since the bank will only give the buyer a loan for the appraisal price, should the buyer choose to over pay, they must do so in cash. This means appraisals can sometimes stop a deal if the seller can't lower the price and the buyer can't bring cash to closing.
Be sure you have a knowledgable Realtor to guide you through the process of appraisals. If you are near Charlotte, NC, I'd love to help. If not, let me find you a great Realtor in your area!