If you are purchasing a property and require financing for a mortgage, chances are an appraisal of the property value will be required by your lender. If you are buying in The Collingwood – Blue Mountain area, I’ve got a few tips for you later in this post that you may want to pay attention to.
Appraisals are usually completed after an offer has been accepted but before a mortgage commitment is extended. The lender contacts an appraiser, the appraiser physically views the property and then compares it to recent sales in the area.
In these cases, the goal of the appraisal is to justify the price paid – not to establish the true market value. This is an important fact to note if you think you scored a real deal and are hoping the lender will tell you it came in over the price you paid. That’s not going to happen. The lender merely wants to protect their investment in the loan to you by ensuring that you are not over-paying for the property.
The appraisal is a critical part of the real estate deal and can make or break a transaction. Today, many of the big 5 banks use a central clearinghouse to order an appraisal and the next firm on the list in the clearinghouse gets a call to go out and do the job. This is where we have run into challenges during the brisk market we’ve experienced in the last couple of years.
Good To Know: In the South Georgian Bay area, we don’t have enough appraisers to satisfy the demand for their services during peak markets. This means it has been near impossible to get appraisals completed in the normal 3-5 days we used to see. At times this year, lenders couldn’t even get someone in within 10 days and as a result, buyers who had short-term financing conditions in their offers saw the deadline dates come and go which sometimes resulted in them losing the property.
Quick Tip: In my experience, our clients who use a big 5 bank, especially one out of the GTA, have had the greatest difficulty in meeting financing condition deadlines. People who have dealt with local branches of the big 5 have had better success and, people dealing with a local mortgage broker have as well. Our best results by far have been with buyers using the local Meridian Credit Union for financing who somehow have been able to get appraisals completed in a more timely fashion.
What You Should Do:
- Avoid over-paying for a property in the first place by asking your salesperson for sale comparables of similar recent sales in the area.
- Include a 10-day financing condition. With more than 20% of properties sold in this past year selling for more than their asking price due to multiple offers, buyers who require financing MUST include a financing condition and it should be for 10 days if at all possible. Sadly, we’re seeing too many seller’s agents shorten up this time frame unnecessarily because they have failed to recognize it is near impossible to do it less time during peak markets.
- Consider using a local lender. See quick tip above.
- Be sure your agent is engaged with the lender to monitor timeframes and with the appraiser by attending the appraisers’ visit and reviewing sale comparables with them.
- Have a contingency plan if the property fails to appraise at the offer price. It may mean you have to try a different lender who uses a different appraiser (but you’ll need more time for this) or, you may need to increase your down payment by the difference in the offered and appraised values.
By following a few of these guidelines and tips, you can improve your chances of securing suitable financing and being able to complete your purchase.