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Should I Pay Over Appraised Value
Dated: May 6 2021
I write these blogs to be really informative in regards to the local Frederick market. As a local agent, you should be getting local expertise and direction.
So in the spirit of professionalism - I am going to be downright obnoxious when I say I absolutely am SICK of this seller's market. We have had a seller's market trending over the last 18-24 months in Frederick. And it has double downed in 2021 in the worst of ways. Here's my 3 point reasoning on why:
-First time buyers held off during the infamous 2020 to buy. Sellers held off to sell. So, now that interest rates are still at such a low, buyers are out in masses. Unfortunately, the sellers just didn't get the memo!
-Builders are WAY behind. Builders were absolutely building during 2020 as they were considered essential business. However, manufacturing and shipping of products slowed tremendously creating a bottle neck in the building process.
-Sellers have nowhere to go! There are very few homes on the market that appease a 2nd or 3rd or 4th time buyer to the point where they would sell their current home to move into something they need/want.
It behooves me to tell you that people are at the point of desperation now. Homes are getting multiple offers. I don't mean maybe 2 or 3 offers - but in the double digits! So you have to write a very impressive offer with a very savvy local agent (me) and a reputable, local lender (I know one). I am helping buyers write offers well over 10% of the listed price and still not getting anywhere. We are getting beat out by cash offers and people who are willing to pay X amount over appraised value.
So it begs the question - should you be paying over appraised value?
Remember, if you need a loan to purchase (as most people do), your lender will not lend over appraised value. Even if a buyer offers 20% over list price - the chances of that appraising are slim (right now). If prices keep increasing with cash buyers (who waive appraisals very easily) and other buyers paying X amount in cash over appraised value in order to win the multiple offer situation - we have to assume that in just a few months, appraised prices will also increase based on recently sold "comps"
This is creating a severe upward trend in prices very quickly in our market. Which means, what you could have afforded 2 months ago, will not even be within reach by summer. It's a scary thought for my first time homebuyers.
I can tell you that I have had good success with my buyers NOT paying over appraised value and getting the home they want. I can also tell you I have seen some struggles! It all depends on the price point and which part of the county you are looking.
My best advice is to make the strongest offer you can and feel comfortable with - this is your biggest asset and your biggest expense. You need to do what is right for you. If you need to adjust expectations, price points, etc to compete - that would be much wiser than spinning your wheels until the market doubles down again. You got this!!!
Written by Kat Royer
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Kat Royer is a graduate of Virginia Tech with a Bachelor’s degree in Hospitality and Tourism Management and minor in Real Estate. She worked for 7 years in operations and sales for a major internat....