Dallas-based real estate agent Laura Barnett didn’t anticipate quite so much interest in a listing she put on the market just three weeks ago. Within days, she received 22 different offers on the property, but surprising didn’t accept the highest bid.
Instead, Barnett accepted a lower cash offer for the property because her client didn’t want to risk any problems along the way, before closing on the deal. She told CNBC that she rejected the highest non-cash offers because appraisals are not keeping up with sales prices, and that if the appraisal doesn’t meet the sales price, buyers will usually be rejected for a mortgage, thereby slowing down any sale.
“They’re kind of putting a glass ceiling where we can’t raise our prices any higher than we have comps to support it, so we’re definitely going with more cash offers than we used to,” said Barnett, a real estate professional with RE/MAX DFW Associates.
Unfortunately for younger, first time buyers it’s them that are suffering the most from this. Buyers in this category are usually ‘mortgage dependent’, and many must also make use of low down payment loans, which have strict underwriting standards. As such, if the appraisal is even slightly short of the contract price it can cause lenders to back off and refuse credit.
“Anytime prices move up fast, the actual appraisal process, because they’re looking back in history, not forward into the future, they are lagging behind,” Lawrence Yun, chief economist at National Association of Realtors, told CNBC. “From the buyer’s perspective, it’s a tough situation where they want to rely on the value of the home, on the appraisal, yet they know that if they decide to back away there are other buyers waiting to pounce.”