It’s been my observation that many people simply aren’t aware of a problem that has been seeping into real estate transactions lately. This problem has sellers thinking about selling a house to a buyer with cash in order to avoid the long delays associated with mortgage loan approval. What I’m talking about in this article genuinely concerns real estate appraisers, professionals whose livelihood is based largely on single family home transactions. And it should also concern you because it will directly affect you and the sale of your house when it’s time for your buyer to obtain loan approval.
Everybody knows that the current mortgage loan crisis is creating a difficult situation for sellers. But the majority of people don’t know the real reasons that many borrowers who have good credit scores are being denied their loans. Sellers are generally unaware of the actual problem unless they have some experience with it themselves. It’s important for every seller to thoroughly understand new changes in home appraisal methods being used by lenders all over the country.
In the present economy and tight mortgage market we have a situation that forces all of us to use our creativity, including homeowners who need to sell their houses. Necessity has always been the mother of invention, and that time-honored phrase certainly applies to all of us right now. Motivated sellers and their listing agents came up with a plan to increase the selling price of a house by exaggerating the actual square footage, in an attempt to make them appear larger and more valuable. That’s right, sometimes they lie.
Naturally, I’m not trying to blame anybody in particular here. That’s not my plan or my purpose. I am simply explaining a new phenomenon and how it’s affecting all sellers these days. The basic problem comes from the fact that mortgage lenders utilize a dollars-per-square-foot formula, and that explains why a house with greater square footage is considered to be more valuable than a smaller house with similar features, of similar quality. Square footage equals dollars in terms of construction cost, and so dollars that to a house also add value to the house. I call it the “real estate space race.” It’s all about trying to inflate the size of a house in order to justify a higher price when it comes time for the appraisal for mortgage loan purposes.
Now it’s becoming easier to see why some sellers find themselves considering selling a house to a buyer with cash, isn’t it? They just want to avoid the usual problems associated with selling a house, but more poignantly, they want to avoid the delays in mortgage financing caused by problems like exaggerating square footage. It can really become a hassle, and it has cost many a homeowner a sale.
Mortgage loan appraisers have a code of ethics to abide by, and while they used to go by the square footage noted in county records, now they are required to actually measure a house themselves to determine the actual square footage. This has changed everything in the marketplace because county assessors have been notorious for giving eyeball appraisals of square footage, and for failing to take new additions into consideration as well. Meaning, the square footage in the county records for tax purposes may not be accurate at all. What the appraiser finds when he or she measures the house for the particular appraisal will control the sale.
And it had better match the square footage the seller and the agent used to market the house, or that’s when the problem occurs. If the square footage of the house is insufficient to provide adequate value, it won’t matter that the buyer and seller have agreed on a price. All that matters is what the mortgage lender believes to be true, and the opinion of the mortgage lender
will be based on the opinion of the appraiser. Remember this when you’re selling a house.