Low appraisal

When the real estate market is overheated, prices tend to rise steeply, and homes are more likely to have a problem with a low appraisal. That is where we find ourselves today in Silicon Valley as properties are selling fast, with multiple offers, few contingencies, and frequently steep overbids with resulting appraisal challenges.

 

Image of houses along a street with part of an appraisal report showing and the word LOW stamped on it with the words below saying "Will your home get a low appraisal?"

In the course of the last week, I’ve heard of massive overbids in much of Santa Clara County, from Alviso to Los Altos, from the lowest price points to those more than $3 million, which is generally the beginning of the luxury tier in Santa Clara County.

In Cambrian, Campbell, and other desirable but non-luxury locations, entry level and move up housing in good shape, with a good location, and not overpriced is getting a lot of attention. Some open houses are mobbed. Realtor colleagues and friends of mine are reporting that among these “normal” homes, some of the overbids are 15-25%, or $150,000 to $300,000 over list price. I heard of one, in another area of San Jose, that was 50% over list price (and it was not inappropriately priced or too low).

Together with those massive overbids are disappointingly low appraisals.

What happens with an appraisal shortfall?

Frequently, buyers with enough cash are purchasing without contingencies (we don’t recommend that, but it’s a reality that if there are a number of offers, some or all will have no contingencies). In those cases, the buyers make up any appraisal shortfall. To do so, they have far more than 20% to put down.

Hypothetical case of a low appraisal: (more…)