What Does It Mean To ‘Waive An Appraisal’? Is It Something I Should Consider As

1. What Does It Mean To ‘Waive An Appraisal’? Is It Something I Should Consider As A Buyer? If you’re interested in purchasing a new home in New Jersey in 2023, you may have discussed the topic of “appraisal waiver,” “waiving the appraisal,” or “covering the appraisal gap” with your realtor. These phrases are all shorthand for the same topic: When you agree to buy the property despite a low appraised value. The purpose of this article is to discuss whether you should buy a property despite a low appraisal, and if you CAN buy a property if it appraises low. Selecting a new home is a very personal decision, and the rationale for selecting one property vs another may be based on financial or non-financial factors. The non-financial factors such as location, proximity to shopping, proximity to school, quality of the school system, ethnic and/or religious makeup of the community, are all topics that should be considered regardless of the appraised value of a property. The financial factors to consider and discuss with a mortgage loan officer NJ include: 1.Will I be able to sell my property for the original purchase price or a higher price in the future? 2.How long will I have to hold onto my property before I can sell the property and make a profit (after factoring in realtor commission, transfer taxes, legal expenses, and other costs)? 3.How much extra will I have to pay (if I pay more than the appraised value for my property)? Does the extra amount depend on the amount of my residential mortgage NJ and/or my down payment percentage? 4.Will I have a higher monthly mortgage payment if my property appraisal is low? For question 1, the answer is, “It depends how long you wait to sell your property, and on how quickly properties are appreciating in the area that you are purchasing.” Many areas of New Jersey are appreciating at 10% or greater rate each year. The home appraisal process is always BACKWARD-looking and uses comparables (similar properties) that have sold in the most recent 12 months to justify the appraiser’s opinion of value. If home prices are rapidly increasing, it is very likely that the market value (what someone is willing to pay for a property) will EXCEED the appraiser’s

2. opinion of value, because the appraiser is looking at comparables that sold in the past for 5% - 10% less than the current market value. Let’s consider an example where the purchase price is $590,000 and the appraisal comes in at $550,000. Should the buyer cover this appraisal shortfall? If the property is in an area that appreciates 4% per year and the buyer plans to hold the property for at least 3 years before they sell, then the estimated sale price of the property in 3 years will be $618,675! After 1 Year = $550,000 + ($550,000 x 0.04) = $572,000 After 2 Years = $572,000 + ($572,000 x 0.04) = $594,880 After 3 Years = $594,880 + ($594,880 x 0.04) = $618,675 So, the buyer will be able to sell the property for more than the original purchase price, but will they be able to make a profit after paying all closing costs to sell their property? This topic is the answer for question #2 from above: How long do I have to hold onto my property to make a profit, after paying for all the expenses associated with selling? Using the example above, let’s assume that after 3 years, the buyer sells their property for $618,000. They will pay the following estimated fees: 1.Realtor Commission – 5% = $618,000 x 0.05 = $30,900 2.Transfer Taxes (Sales Tax) = $5,376 (online calculator here) 3.Attorney Fee = $1,750 (this is just an estimated average price) 4.Miscellaneous Costs (repair credits, prorations for utilities, taxes, HOA fees, etc) = $4,000 In total, the selling costs would be: Total = $30,900 + $5,376 + $1,750 + $4,000 = $42,026 So, in our example of buying for $590,000, receiving a low appraisal of $550,000, and selling 3 years later for $618,000, the amount that the buyer would LOSE is: $618,000 - $42,026 - $590,000 = (- $14,026)

3. So how long would the buyer have to hold their property before selling it to make buying at $590,000 a decision that would not cost them money when they sell? The answer is approximately 3 years and 7 months, and this would yield the buyer a profit of about $169.