Our local real estate market continues at the hot pace we’ve been on, although there are signs of inventory increasing with homes beginning to come onto the market at a faster pace than they have recently. That is a good sign in that we may see more balance in the market soon.
As I mentioned previously in this space, the intense competition for listings has impacted the role and effects of both home inspections and appraisals.
Typically, once agreement has been reached between buyer and seller, the buyer will have ten days (could be less, depending on the terms) to conduct a thorough home inspection and respond back to the seller.
These inspections are done for the benefit of the buyer, and generally consist of a licensed inspector taking a thorough look at the home, from the crawlspace to the roof, checking plumbing, electrical, heating and cooling systems, etc. Often, especially with older homes, a sewer scope inspection is also done.
Inspections in any market always constitute a second round of negotiations. Options for the buyer include simply approving the inspection and moving forward to closing, rejecting the inspection and terminating the transaction, or most commonly, asking the seller to make some repairs or concessions. The seller may agree to all repair requests, or agree to some but not all, or to none. Then the ball is back in the buyer’s court. Unless the seller agrees to all requests, the buyer can continue to negotiate, though they have limited time to do so, can agree with the seller, or reject the response and terminate the sale.
Recently we’ve seen some buyers making exorbitant requests to compensate for feeling that they may have overpaid for a home which had lots of competition. This has often caused sales to fail.
Once the parties have agreed on the inspection results, the next step is to order the appraisal.
Appraisals are done primarily for the benefit of the mortgage lender, though they do assure the buyer that the value of the home is appropriate to the sales price. The focus is value, though the appraiser will look for glaring signs of deferred maintenance, such as peeling paint or a bad roof, and may call for those sorts of items to be repaired. These repairs are not negotiable; if the loan is to be approved, the seller MUST do these repairs.
In the case of a home selling at an inflated price, the appraisal value may come in below the agreed upon sales price. In that event, the parties have options. The seller may agree to sell at the reduced price. The buyer may agree to bring additional money to closing, to keep the new loan amount at or below the appraised value. They may dispute the appraisal and ask for a review, or negotiate a compromise. Or the sale may simply fail.
Our current market requires up to date strategies for both buyers and sellers. Develop a plan with your REALTOR®. Be realistic, and you can do well, and have fun in the process!
Feel free to call me to discuss these or any real estate topics or properties.
Ed Tropp, REALTOR®, GRI