Paying the big price

WHEN BUYERS PAY OVER LIST

Price tags on homes are merely a guide. Historically, actual amounts paid average a certain percentage — five percent or so in many markets — below list price.

Now, however, due to the limited supply of homes for sale in many places, buyers are paying more than sellers ask. The eager buyer has the satisfaction of winning a bidding war, but it’s also human nature to worry about overpaying.

Moreover, a purchaser could encounter financing hitches, since lenders typically won’t make mortgages with smaller down payments if an appraisal falls short.

Typically, an “analysis of sold and settled sales” of similar properties within the last six months should support a purchase price, explains Don Boucher, Orange, Virginia, a home appraiser.

When markets show an upward price trend, a spring sale might be somewhat higher than those closed six months earlier. If multiple buyers are bidding up the price over list, the trend is accelerated.

Then, appraisers “have the ability and obligation to consider other market data such as pending contract sales” Boucher says.

Whether or not other pending sales support a price depends, explains Woody Fincham, vice president of Valucentric. “Everything in real estate is situational,” he adds.

If an appraisal falls short, “the biggest danger consumers can get themselves into is committing to a contract price they can’t afford,” Fincham says.

Buyers with ample cash to put in a down payment “are protected somewhat” from a financing dilemma if the home they’re purchasing price doesn’t appraise at the offer, says Mike McElroy of Center Coast Realty.

Anyone that fears financing issues should ensure their contract has a contingency, McElroy advises.

However, he often sees purchasers that have the funds, “willing to do whatever it takes to win a bidding war, especially after they’ve lost out on a few places.”