Buyer Beware. What the heck are the bank’s thinking?

I’m going to cut right to the chase and say that it seems these days, the bank and their appraisers are not your friend.

If you are actively searching for a house or condo and working with a qualified Realtor™ (I’ll leave it up to you as a Buyer to do your due diligence on what ‘qualified’ looks like) then you will most likely know that in many pockets of Toronto, the real estate market is still actively hot.

I, along with a network of experienced and active Realtors™ across the city, continuously network frequently on the goings on “behind the scenes” in our real estate markets. The things we discuss you most likely won’t ever come across in the main stream media (and before you ask, no, I will not share what they are, with the exception of one) but let’s just say that they allow for a competitive advantage to be had on behalf of our clients.

One trend that seems to be surfacing more often than we’ve seen in the past many years, is a difference between the price paid for a property, and what the bank is appraising the value at. And yes, make no mistake,  the appraiser works entirely in the interest of the bank, even when you are the one paying their fee!

As an agent who works with both buyer and seller clients, I will speak from the selling side (list side) and say that, when I provide a value range for a client on what to expect from the sale of their property, it’s always based on what I believe will be a reasonable expectation of that value and one that shouldn’t stand out come appraisal time. Now, the property may sell for more than this range and that’s when I revisit the conversation on sale price verse appraised value (and let’s face it, we ALL would enjoy receiving more money than reasonably expected) and what this may mean come closing time. Personally I don’t believe a bank is responsible for taking on the added risk on what an overly motivated buyer might end up paying.

Where a big part of the problem lies is when the bank does their appraisal. Often it is days before the scheduled close date (some argue this isn’t by accident!) leaving little time to scramble to deal with other options if the paid value doesn’t come through.

On top of this they can use moving parameters and logistics that can make even the most grizzled veteran mortgage broker lose sleep. (Pro tip: Always, always, always use a professional mortgage broker for your borrowing needs and this is not the time to use your cousin who is a full time firefighter and amateur mortgage person).

As a buyer, if you are working alongside a competent professional Realtor™ then you should have a “feel” for what’s right on the price you are paying when you buy. It may take time to get there, or you may have complete trust and faith in the Realtor™ representing you. One of the signs I know that I’ve done a great job when representing a buyer, is when they can confidently feel or say to me, “Mike, we feel we paid a fair price” for the property they just purchased. Educated Buyer. Check!

My hope is that one day the appraisal process will be more transparent along with added protection for buyers (and potentially the seller.) Until then, proceed with optimistic caution and be prepared with a plan B. And if you take my advice on using a competent Realtor™ and mortgage broker (this all applies to the real estate Lawyer you use), you heighten your chances of a smooth process come closing day.

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