For some buyers, dream home is worth more than appraisal
Ryan Williams had been house hunting, off and on, for two years. He finally found the perfect place in Pompano Beach, Fla., a four-bedroom home with a pool and a two-car garage. He ended up paying $490,000 – even though the appraisal came in at only $425,000.
Williams said he had no complaints bringing an extra $65,000 to the closing table on top of a $160,000 down payment.
"I still thought I got a good deal," the 40-year-old biologist said. "I plan on staying in the house a long time – I'm telling everybody 20 years, at least. I'll be OK in the long run."
Historically, most homebuyers didn't dare pay above appraised value, but that mind-set is changing amid rising prices and increased competition for a scant supply of homes.
Ryan Paton, president of Capital Lending Group in Fort Lauderdale, Fla., said he personally wouldn't pay more than about $10,000 over appraised value. But he understands why other people will.
Even if recent price gains level out, as expected, there doesn't appear to be any huge new drop on the horizon, he said. Buyers won't risk owing more than the home is worth – as long as they put down about 20 percent and intend to stay in the home for more than a few years.
"If they're going to be in it for the long run, who cares what values do in the short term?" Paton said.
Some prospective buyers say they have no choice, that they either come up with the extra cash or watch the seller move on to the next offer. And with a shortage of homes for sale, it could be weeks or months before they find something else.
"You'd have to start the process all over again – the hunting, the multiple offers," said Joy Fischer, a real estate agent in Florida's Broward and Palm Beach counties. "It would be hard to find another house."
In the past year, many sellers and real estate agents complained that appraisals weren't keeping up with fast price increases, leading to lower valuations and canceled or delayed sales. Many working-class buyers, for instance, saw their hopes dashed because they didn't have any extra money to kick into the deals.
But those frustrations are starting to ease, said Jim Flood, regional manager for Supreme Lending in Plantation, Fla. He estimates 8 out of 10 appraisals now meet or exceed the agreed-up on sales price.
If the appraisal does come in low, buyers and sellers tend to compromise, Flood said. But some sellers are unwilling to renegotiate the price down to the appraised value because they have back-up offers from investors paying cash. In a cash deal, no appraisal is needed.
"It's not in your best interest to buy something that's overpriced," said Kristi Sachs, an agent in Fort Lauderdale. "But sellers have a lot of different options now. And sometimes buyers walk in and light up and they have to have the house."
Earlier this summer, Will Hauser agreed to pay $320,000 for a Coral Springs, Fla., house, only to find out later it was appraised for $295,000.
Hauser, a professor at Florida Atlantic University in Boca Raton, Fla., immediately looked at more properties. But he couldn't find any in his price range that were similar to the four-bedroom home on a cul-de-sac with a water view and a big banyan tree out back.
Hauser said it stung to reach into his savings for the extra $25,000, but he's glad he did.
"The house is worth it," he said. "It was a no-brainer."
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