First times can be awkward. We share the dirty details of our own homebuying experiences & are joined by guest Loren Grush who recently bought her first house in this crazy pandemic housing market. Find out why heartfelt letters shouldn’t be a thing in the real estate industry, what an appraisal waiver is and the key to avoiding the all to common buyer’s remorse.

Correction

The increase in median house price in Austin from June 2020 to June 2021… was actually over 40%!!! Not a mere 25-30% jump. Wow.

Top Lessons from our own homebuying experiences:

* The best way to avoid homebuyer regret is to put together an all star team.* Real Estate Agent who doesn’t try to sell you every house you walk into. * Mortgage Broker who will go over your finances with you 6-12 months before you want to buy a house and help you prioritize ways to tweak your finances and debt so you look good for the banks.* You’re going to need more money than you think. Increase your emergency fund.

Apprasial Waiver / Appraisal Gap

When the housing market became insanely competitive in Austin during the pandemic, something called an Appraisal Waiver became a common but potentially risky tactic to beat out other buyers.

* Banks will only give you a mortgage for the amount of money an appraiser tells them the house is worth. * Appraisers base their estimate of the house value on similar houses (comps) that have sold recently.* If there is say…. a global pandemic, then a situation might happen where the real estate market shuts down for a few months and when the market does start up again, there’s almost zero supply and demand skyrockets from hordes of people deciding they want to move to a particular city. This causes prices to jump very rapidly at the same time that there are zero recent comps for appraisers to use to support the new prices.* In that case, the true value might be $500k but the last similar house that sold went for $400k, so the bank only wants to write a mortgage for $400k.* If you are trying to get a mortgage and there are no recently sold houses that support the price you’re paying, the appraised value will probably come in lower than you need for the mortgage. In a competitive market where you are fighting against cash buyers who don’t need an appraisal, you may choose to offer an appraisal waiver saying that you will cover the appraisal gap with extra cash if the appraisal comes in low.

Here’s An Example:

You’re in a multiple offer situation and you manage to beat everyone else by making a $400k offer.

A few doors down, there’s a house that’s exactly the same as yours that sold a few months ago for $350k.

Normal Situation

Purchase Price: $400k

Appraised Value: $400k

How much cash do you need upfront?

5% down payment on $400k mortgage = $20k + closing costs

Appraisal Gap Situation where you waived the appraisal

Purchase Price: $400k

Appraised Value: $350k

How much cash do you need upfront?

5% down payment on $350k mortgage = $17.5k

$50k shortfall between appraised value and purchase price

$50k + $17.5k = $67.5k + closing costs

Why would you decide to give an appraisal waiver/appraisal guarantee?

If comps haven’t caught up to true market value and you’d rather risk paying more ...