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Real Estate Appraisals

The Big Bear real estate market isn’t immune to market fluctuations and many sellers are finding themselves in an unhappy but common predicament. They may be in escrow with a qualified buyer but the financing has now fallen through because the appraisal has come in at less than the agreed upon price of the home.

This has led to a high number of contract cancellations. The increase in contract cancellations or delays has been blamed on more lenders declining mortgage applications from stricter underwriting standards and low appraisals coming in under the agreed upon contract price.

Lenders usually won’t write a mortgage for more than a home is “worth”. This would set them up for a large financial burden should the prospective borrower default on their loan. They will, instead, write a mortgage for whichever is less, be it the sale price or the appraised value. From a business standpoint it’s logical. For an unpredictable housing market, it’s downright frustrating.

Appraisals typically cost anywhere from $350 to $400. However, if the house is unusually large or multi-unit, it could run more. The cost varies on property type, location and square footage.

The most common type of appraisal is the Uniform Residential Appraisal Report (URAR). It consists of interior and exterior photos and sometimes (depending on the age of the home), a complete cost breakdown of the property and comps (comparison sales of similar homes located near the subject property). These comps help determine the “market” approach. Each comp sale is adjusted in value when stacked against the home being evaluated (the one you’re buying or refinancing).

One of the issues with appraising homes in Big Bear is, “what is a true comp?”  With so much variety and a lack of track homes, properties in the same neighborhoods can vary widely.  Just because a home may be similar on paper doesn’t make it a comp.  What about the views & setting that most real estate buyers in Big Bear are looking for?  It’s hard to add a monetary number to that and be accurate.  Appraisers try to follow the rules but a lot of time the Big Bear real estate market is hard to fit into a box.  The second issue is making sure the person doing the appraisal is geographically competent in the market they are appraising.  Unfortunately, we get our fair share of appraisers coming up to Big Bear with limited data to support their appraisal.  In the end, the product they produce is inferior.

Appraisals should be objective and  influenced by local market factors. If there are 10 houses on your street and 4 of them are in foreclosure, you’re in for a shock when it comes to the current value of your home.

That’s why it’s so important to price your home correctly in the first place. You may think your house is worth more than other homes in the neighborhood, but if the comparable sales and market data don’t support your price, it’s likely that the appraisal won’t either.

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