The real estate market in Iowa City transitioning into a sellers market. Houses are selling faster and prices are starting to rise. It’s no surprise in this changing market that there is a bigger potential for the home appraisal to come in lower than the purchase price – So what do you do when that happens?
The first thing you do is not to panic. When an appraisal comes in low in a rising market it is more likely to be a sign that the market is correcting itself than it is anything else. It’s not an insurmountable difficulty. (Unless it’s mismanaged that is).
The Effect of a Low Appraisal in a Rising Real Estate Market
So now let’s put this in some perspective. If a house comes in $1000 – $2000 dollars shy of the asking price it’s good to keep in mind that we’re talking about 1% of the purchase price if the house is priced around $200,000. In a rising market it’s easy to see the market rising at that rate and there’s little or no danger that if you decide to make up the short fall that you’ll be over paying for the house. It’s your job, along with your Realtor to figure out whether the sellers asking price is in line with what is happening in the marketplace. It goes without saying you’ll need to work with a Realtor who understands market trends in Iowa City to accomplish this step effectively.
Will The Seller Lower the Price if the Appraisal is Low?
Your first line of action of course is to try to get the seller to lower the price to the appraised value. Don’t let anyone tell you that sellers have to do that though. It’s the sellers decision. Sometimes they do lower the purchase price, sometimes they don’t. When we had a buyer’s market in Iowa City sellers typically did lower the price for fear that the buyer would walk and pick one of the other many houses on the market. In this new seller’s market all bets are off. There aren’t as many choices for buyers, sellers know that and aren’t as quick to lower the sales price of the home – They know there’s another buyer just around the corner.
In the event the seller isn’t ready to negotiate on the price then it’s up to you to decide if you feel comfortable paying more for the house. You may need to make a bigger down payment as the bank will not cover the amount above the appraised value.
Buying a house in Iowa City in a seller’s market is very different to buying a house in a buyer’s market. An appraisal that comes in lower than the purchase price is likely to initially throw you for a loop. The thing is to remember that as long as it’s only slightly low in all likelihood the market is correcting itself and your house will be worth what you pay for it in no time at all. Also, this is a good time to remember that as soon as your house closes at this new higher sales price it becomes one of the comparative sales for future buyers and will bring house values up for the next appraisal in that neighborhood!
Buyers or sellers market, buying a home in the Iowa City area comes with challenges. Working with the right Realtor will ensure that when those challenges arise you’ll know what to do. Give me a call today at 319-400-0268 – A common sense approach to real estate means that I’ll always tell you what you need to know and guide you throughout the process – There’ll be no second guessing your decisions after closing!