Since the housing crash, the national real estate market learned a lot of lessons and has acquired an overall more cautious atmosphere. An intriguing new trend of wariness is cropping up among mortgage appraisers, influenced by the ghost of the last housing boom and resulting crash—and while it’s not great news for mortgage-dependent first-time buyers, it can potentially benefit those who are paying cash.
During the last housing boom, appraisals were inflated in order to drive home prices higher, to take advantage of the large number of investor-flippers buying up property at the time. When the market crashed, appraisers were careful to avoid overestimating the value of homes and now tend to underestimate, meaning that for mortgage-dependent buyers, the appraisal and contract price of a home don’t always match up. When this happens, the buyer doesn’t get the mortgage and the deal usually falls through. Young first-time homebuyers are being hit the hardest by this trend, because they tend to utilize mortgages more than most, especially low- down payment loans.
For cash buyers, however this is an excellent advantage. While a seller may receive higher bids from mortgage-dependent buyers, those bids may be more trouble than they’re worth if there are any closing snags with the appraisal. Buyers paying cash (usually investor-flippers) won’t have any mortgage issues by default, making their bids the most attractive even if they aren’t the most numerically impressive. And because this time investor-flippers aren’t using banks while artificially driving up home prices, there’s less risk of a crash. So long as appraisers err on the side of caution in their appraisals, cash buyers will keep winning, and providing fierce competition for first-time homebuyers dependent on mortgages.
The issue of gaps between appraisals and actual home values is also exacerbated by the sheer lack of appraisers to go around. There simply aren’t enough appraisers to handle the current market, and prices are rising faster than they can keep up. Those currently in the industry are having to deal with regulations, compensation issues, and a changing market structure. There aren’t many incentives to draw more professionals into the industry to take up the slack, causing appraisals to lag behind the market.
If you’re a cash buyer, take advantage of this trend to beat out the competition and secure the property you’re after!
For more information on appraisal issues, the current Ocala market, and the pros and cons of buying cash, contact a Showcase team member. We’re constantly monitoring the local Marion County and national markets, and gathering information on the latest trends to help you succeed in all your real estate goals.
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