“I knew a guy who sold his house for $100,000 under the market value because he felt like it…” said nobody. Ever.
My point is that no seller is ever going to knowingly sell a property for under market value in this day and age – when listing information is made available to everyone via myriad websites and when there are dozens if not hundreds of buyers willing to bid on every property.
There are the occasional exceptions for non-arms-length transactions (between family members, for example) and in situations where sales were rushed, or where properties were listed way too low (but even low list prices often result in bidding wars that end up pushing prices back up to “market value”).
Why Lenders Have Seasoning Requirements
Anyway – nobody understands all this better than appraisers and underwriters.
And – that is why many lenders have seasoning requirements after a purchase closes – before a home can be appraised for a value that is higher than the purchase price.
One Year Of Seasoning
Our jumbo investors with the lowest rates, for example, will not let us re-appraise a house for more than the purchase price until one year passes from close of escrow – no matter how fast the market is appreciating.
Other jumbo investors, with higher rates though, only require six months of seasoning from the date of purchase.
Fannie Mae and Freddie Mac, however, have no seasoning requirements for conforming loans.
Skeptical Appraisers
But – appraisers will remain very skeptical for the reasons stated above and want to see very strong support for a higher value before appraising a property for more than the purchase price. (Appraisers always tend to correlate to the previous purchase price whenever a purchase is less than 12 months old).
Support for a higher value includes significant improvements such as a structural remodel (not cosmetic items like new paint or floor coverings), and/or very clear evidence of appreciation in the immediate area.
Why This Is Important Now
This is an important concept to understand right now because now that rates have climbed so much, many of the people who still want to refinance need or want higher appraised values to get cash out and/or to refinance out of Private Mortgage Insurance.
And – if they purchased their home less than a year ago, a higher appraised value is not always easy to come by (or even allowed in many cases).
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
