When high bid is over appraisal in hot housing market


The demand for housing in Bucks and Montgomery counties has skyrocketed this year, as the local economy pushes itself out of the pandemic. For months now, bidding wars among buyers have pushed prices up to unprecedented levels.

“Buyers are ravenous and desperate, which makes for no slowing of the market,” said  Alex Shnayder, a real estate attorney and agent with Re/Max in Feasterville.

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But as many buyers are bidding higher than the asking price, some appraisals that help finance these hot market transactions are coming in too low to seal the deal. What’s a buyer to do when the appraisal needed for a mortgage doesn’t come in near the price they’re offering the seller?

It’s a tricky question, Realtors and mortgage brokers agree. And one that can stop a sale in its tracks. 

“I’ve had several sales where people overpaid, and then when the appraisal came in, they had to come up with an extra $30- or $40,000,” said Jill Kohler of Net Equity Financial in Langhorne. 

Mortgage commitments are based on the appraised value of the home. A lender might not agree to finance a purchase if the money needed to complete the sale is more than the home is worth in the eyes of an experienced appraiser sent out by the mortgage company to check out the property.

For example, if a buyer bids $300,000 for a home, but it only appraises for $280,000, the lender might only agree to lend money to complete a transaction to that amount.  The buyer will be left to come up with the extra $20,000 to go to settlement, or lose the home.

“I’ve had a few people cancel the transaction because the appraised value didn’t come in close to the price,” Kohler said.

And home prices are only going up in Bucks and Montgomery counties.

The Long & Foster Market Minute shows that the median home price in Bucks rose from $340,000 last June to $420,000 this year, a 24% percent increase with the average sale price being 101.5 percent of the asking price. And the inventory of homes for sale remained low at 763 in June, though it rose 13% from May’s 673 homes available.

In Montgomery, the median sale price was $380,000 ,or 15% higher than the $330,000 median sale price in June 2020. The average sale price was 102.2% higher than the asking price and the number of homes for sale was 1,054, a 10 percent rise over the 962 available in May. 

Looking back at the 2020 market: With mortgage rates at historic low, it’s a seller’s market as buyers hunt for homes

The concern about appraisals in a market driven by multiple offers and bidding wars contributed to the Pennsylvania Association of Realtors introducing a new “Appraisal Contingency Addendum to Agreement of Sale” form on July 1 to help move sales along.

The form now…

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