The brilliant colors of autumn are beginning to wane. There is a distinct chill in the morning air and all too soon Daylight Savings Time will be over. We’ll roll back our clocks and enjoy an extra hour to stay snug in our beds. Yes. Fall is here. Halloween is almost upon us, Thanksgiving is right around the corner, and – not to freak you out- but there are only 63 shopping days left until Christmas 2021.

For those of you still searching for that perfect home or those considering selling one that no longer feels perfect, the market here in Los Alamos County still continues to be a seller’s market. A week or two ago there were actually over twenty homes available on the market, an unprecedented event in recent memory. However, we’re starting to see some signs of “buyer fatigue”. There aren’t quite so many offers for each home prior to sale. Many people have taken a pause and aren’t so sure they want to shop for a home right at the moment. There is certainly something happening here in our local market. And no. This doesn’t mean you’ve missed your window. LANL is still hiring. Homes are still in high demand. And this demand for homes is nationwide and not just here in Los Alamos. Which brings me to a few interesting points about the market of “as is”.

Bridging the Appraisal Gap

Many of you have heard this phrase before. We’ve touched on it a few times in past posts. The appraisal gap. The distance between what a home is valued at by a licensed appraiser and the bank willing to offer the mortgage, and the price the seller is asking or the buyer is willing to pay. Traditionally, this gap was seen as being in the buyer’s favor. If a bank determined that a home wasn’t “worth” what a seller was asking due to recent comparable sales in and around the area, then a buyer would lower their offer accordingly. At that point it became up to the seller as to how badly they really wanted to sell their home. Either they lowered their asking price or they waited for another buyer who really wanted to buy the property. Most of the time, they lowered their price and the sale continued. This isn’t the case anymore and it isn’t just the home markets seeing this trend. Have you tried to purchase a vehicle in “high market demand” lately? Dealers are adding up six or seven thousand dollar “market premiums” onto their MSRP because certain popular models sell out and create a supply/demand issue. The way that we buy and sell things in general has most definitely changed!

However, something that has affected that appraisal gap in recent months is the fact that we are seeing most of the homes selling in our county appraise at a level consistent with what – at first glance – might seem like a steep purchase price. Why? It’s actually both simple and very complex. See, we’ve been in a seller’s market for a long time now. There have been a lot of buyers bridging that appraisal gap for more than a year. I’ve seen clients bring more than thirty thousand dollars plus their down payment to the closing table in order to secure the home of their dreams. But this has effectively created a market that supports the purchase prices we see now. Why would House A not be valued at X when Houses B, C, D, & Z have sold for right around or even more in the last six months? Once enough sales have taken place, an appraiser has enough comparable sales to establish a higher value. Of course that’s great news for anyone who had to bridge that appraisal gap in the beginning.

A home is worth what a buyer (or 3 buyers) is willing to pay for it in an open market. Even if it does not appraise to value, it is still worth what someone is willing to pay for it, and the worth is not dependent on the appraiser’s opinion of value.  This is the reason people are making their offers with the appraisal gap language.  They are stating that this home is worth it to me, and I’ll put my money where my mouth is.

I often get asked what happens when a buyer suddenly decides that they’re not quite so willing to bridge that appraisal gap. After all, there are reasons writing an offer for a home is serious business. The offer is a contract, a binding legal contract. When my buyers decide that an offered purchase price is no longer in their best interest, I always tell them they need to consult an attorney. It is possible they could be held to the contract with their signature on the dotted line. This is and continues to be a serious risk. Legal action, consequences, and keeping your word are par for the course. Certainly there could be issues with financing, qualifying for a mortgage, and plenty of other concerns when it comes to closing on a home. But if you agreed to pay X, then you’d better be prepared to pay X. Sellers have often made plans based on the offer they accepted, maybe made an offer on another home, or even just scheduled movers. Sellers typically choose the offer based on the chances of it closing on time, for the agreed upon price, and under the agreed upon terms.  It is a big deal for a seller to have to go back on the market for many reasons, people wonder what happened (is something wrong with the house?), they’ve lost time, and interested buyers.  There is no guarantee of multiple offers when going back on the market after a deal falls apart, and no guarantee that they’ll get as much money with the first buyer.  There could be legal and monetary ramifications for defaulting on a contract even in a seller’s market when the house could sell again. 

What would make a buyer change their mind about bridging the appraisal gap? The other aspect of “as is” has a huge impact on that. The home inspection. But we’ll talk more about that next week. For now, I’m going to sign off and remind you that I’m always here ready to answer questions about appraisal gaps and every other aspect of home buying and selling here in Los Alamos. After all, I’m your home town real estate agent. So give me a call! I’d love to chat with you.