With interest rates spiking, stubbornly high prices, inflation, and flat wages, affordable housing seems out of reach for many. We’re also seeing those same old ‘creative’ financing tactics for real estate that were prevalent in the mid-2000’s before the Great Recession. While tempting, these have proven disastrous. Yet, with patience and sound advice, it’s still possible in many local markets to find a home you can truly afford.
I recently received an assignment for an appraisal for a purchase transaction in Pueblo West, CO. It was a rush FHA assignment and the lender was willing to pay accordingly. After a few frantic email exchanges and coming to terms regarding the due date and fee, the client sent over the purchase agreement along with the other necessary documents. I was even planning to compromise my weekend to deliver on time, which is something most appraisers routinely do to stay competitive.
What I saw upon opening the attachments shocked me, although it really shouldn’t have. The buyer had signed a contract that would put them into an immediate negative equity position, due to a $21,000 seller concession (on a $400K property) and a purchase price over 5% higher than the most recent list price, despite the property being on the market for over 60 days and having had numerous price reductions. Predatory ‘deals’ like this are unfortunately becoming all too common.
Additionally, this desperate seller is going to watch a huge chunk of their hard earned equity vanish to get a deal done. When this happens, it has a ratcheting effect in which the seller, now much lighter in the wallet, often has to settle for a similar bad deal to find a new home.
I immediately recused myself from the assignment, not wanting to profit from such a transaction, in which buyers and sellers are served up as the main course, while the agents, lenders, title companies, and others walk away from the table satiated, having fed to the full.
One might say, “Just take the deal and perform the appraisal with skill and integrity, even if the opinion of value may be less than the purchase price.”
While that sounds good in theory, the reality is the appraiser will get thoroughly raked over the coals, be blamed for ‘killing the deal’, may get silently black-balled by the client, and risk defending themselves for years from a frivolous complaint that is just a click away. It’s easier for me at this point in my career to just say no. Sadly, another possibly more desperate or inexperienced appraiser will just come along and hit their number without a second thought.
A recent Redfin article worth reading, estimates the housing market may take another 5-10 years to recover, assuming certain wage growth and mortgage interest rates. So, what if you need a home now?
Find an agent that will truly consider your best interests and advise you in an ethical way, rather than just trying to make a sale. There are many great, honest and hard working agents out there that I’d be happy to recommend if contacted privately.
Remember, paying more than asking price is almost always a bad decision. Markets nationwide are still recovering from the buying frenzy of the COVID years. The internet is full of stories of buyers who felt like conquerors when they outbid all the other poor suckers, and are now either stuck or selling for enormous losses. Ask yourself, in what world would you choose to pay more than asking price for a new car, a pair of jeans, a can of beans, or nearly any other commodity? Equity is hard to earn so why start off in a hole?
Finally, consult an unbiased real estate appraiser to give you context and advice related to a potential purchasing decision. In a tight market where every dollar counts, a couple hundred dollars may seem like a lot, but in the end it could save you from making one of the worst financial decisions of your life.
