News outlets have been reporting for months that the current Texas real estate market is a seller’s market with the difficulties facing buyers well documented. This has resulted in houses selling well above value and oftentimes the buyers agreeing to unfavorable terms to secure a property. Due to these changes in the market, real estate experts are also seeing appraisal waivers starting to become more commonplace.
Simply put, an appraisal waiver allows qualified home buyers to skip the in-person appraisal process and rather rely on existing data to determine the value of the home based on other recent home sales in the buyer’s area.
Local Austin lending expert, Zander Blunt of PrimeLending NMLS:188473 breaks down the must-known details about lending and appraisals in the current Texas real estate market.
The Texas real estate market is one of the markets where it is most evident that conditions are heavily weighted toward the seller. Driven primarily by the impact of the pandemic, people are more commonly able to work “remote” and are realizing that they don’t necessarily need to live in the same state as their employer is based. This has played a huge factor in the recent increase in relocation to state with favorable tax laws, as well as other lifestyle benefits for home buyers and sellers. Cities like Austin and San Antonio are seeing an unprecedented influx of people relocating both within and from outside of the state of Texas. As expected, this has created a housing shortage that is driving the price of houses up to the extent they are selling on average 5-15% over appraisal value.
While in some markets, appraisal waivers have been a regular feature for some time, they have only become more common within the Texas real estate market over the past year or so. To a buyer, essentially an appraisal waiver means that you are committing your intent to buy the home regardless of the appraisal value. Currently, around 80% of homes in the Texas market are selling with an appraisal waiver. As it is a seller’s market, sellers are more incline to choose to go with offers with an appraisal waiver because it is essentially an unconditional offer on their property.
Sounds good for the sellers, right? But what does this mean to the buyer?
This means that now more than ever buyers have to have the deposit necessary to meet lending requirements, PLUS the cash to make up the difference between the seller’s asking price and the appraisal value. This has created an environment where agents and lenders are required to get creative with pre-approval letters to satisfy the seller’s expectation that the buyer does in fact have the money to fulfill the purchase agreement.
Lenders are doing their due diligence and now looking beyond income and into the assets held by the borrower. This means that where a pre-approval letter may state the buyer has a deposit of 40%, this will typically be made up of the minimum cash down payment plus a cushion designed to cover the difference between the appraisal and the asking price.
Another trend that we are seeing more commonly throughout the Texas real estate market are partial waivers. These are similar to an appraisal waiver, however, limit the amount over the asking price the appraisal can be for the purchase to go ahead. In the current market, partial waivers have limited use as there are a significantly high number of buyers who are prepared and eager to sign full appraisal waivers.
Now, more than ever before, a reputable agent is essential. Sellers are taking note of agents known to be credible when deciding between the twenty or so offers they have been presented with. By choosing a reputable agency/firm with experienced agents, agreements can be structured in such a way as to maximize the chances of securing your dream home without irretrievably breaking the bank and overpaying for the property.