The importance of the Appraisal in a real estate transaction can often be one of the most “overlooked” details in the process. In recent months, there has been a significant increase in the property values of a Downtown San Diego Condo. The result of these value increases has had a huge effect on the appraisal process within a standard real estate transaction. In any real estate transaction…value is determined by the price a willing buyer will pay and the value a willing seller will accept. This is all with the assumption, however…that the bank can support that value based on sold comparable units and other recent activity in the surrounding market area. If there are “comparables”
(Sold Properties of Like kind) to support a certain value…the appraisal process for a Downtown San Diego Condo usually goes smooth. In an increasing Downtown San Diego Real Estate market, when property values go up quickly and a comp is being set…usually the ultimate “appraised” value needs to be taken into consideration as it will have an important effect on both buyer and seller.
When a buyer writes an offer to purchase a Downtown San Diego Condo, the offer is usually contingent on 3 major components of the transaction: Due Diligence (Inspections and Review of Disclosure), Appraisal, and Financing. The appraisal process is important, as it is the determination of value that a bank will use to lend money on the property. When financing is part of a transaction involving Downtown San Diego Condos, the bank will only loan money if the value offered on the condo and the appraisal value match up. After all…the condo will be used as collateral to secure the loan, and obviously no bank will want to secure a loan when the value is significantly lower than the loan amount. If the Appraisal value is sufficient to secure a loan…neither buyers or sellers will have an issue. The issues result when the appraised value is lower.
When the appraised value of a Downtown San Diego condo comes in lower than the purchase price…often times one of the parties involved in the transaction is going to have to make up the difference between the lower value and the offer price. Depending on the agreement…a seller will agree to lower the price, or a buyer will agree to bring in more of a down payment to cover the difference. Either way…this is not where any buyer or seller want to be in the middle of an escrow/transaction.
So…what can buyers and sellers of Downtown San Diego condos do to avoid low appraisals? BE PROACTIVE. If you are using a good and talented Downtown San Diego Realtor…these issues will be addressed in the offer process. A Downtown San Diego Real Estate specialist knows the values and neighborhoods better than anyone. If the purchase price looks like it may exceed the comps of the building and/or neighborhood, your Realtor can address the potential of a low appraisal in a Counter offer. Having an agreement up front will ensure that neither the buyer or seller are scrambling at a critical time in the escrow process looking for an agreement that could have been handled up front. Before removing the Appraisal Contingency in the transaction, a buyer can choose to cancel the escrow when the appraisal does not support the value. A buyer will do this only when they think there is a chance of overpaying for the Downtown San Diego condo.
Sellers…have the discussion with your Realtor in advance of the offer process. All sellers want to get the most value for their Downtown San Diego condo as possible. However…without addressing the comparable values in your building or neighborhood, you want to make sure that the value is not too high for what the market will support. Sellers, if you know that value may be a question in the transaction…make sure that your Realtor is going to meet the appraiser personally and provide as much local data about the Downtown Real Estate Market as possible. Appraisers work “county wide”. Often times they will not have the local knowledge of the Downtown San Diego Real Estate market to make a determination on the small details that add value to a particular unit. ')}