With the fact that the properties prices in Malaysia have gone up for the last few year, I foresee the property price for medium range housing below RM1.0 Million is still performing good this year due to shortage of supply, this sound good sign to home sellers, but for house buyers do not have large cash reserves may face biggest challenge on getting the bank mortgage approved based on the purchased value.
Many a time, appraisals do not correlate to the purchase price of a house since the purchase value depends upon the buyer’s perception or seller asking price. Sometimes, a buyer may like a house so much that he is willing to offer a price well above the listed value knowing fully well the risk which he is taking of the appraised value falling short of the purchase value.
Generally speaking, property evaluations are done for the lenders and not the buyers to make the lenders feel secure about the property as collateral for loan. So, when a buyer knowingly offers a price much higher than the appraisal value, sellers have to counter-offer that the appraised price does not become a contingency of the deal. This makes the buyer disqualified from offering a minimal down payment since a low appraisal will have an effect on their qualifications for the loan unless they can make up the deficit by additional personal funds. Buyers too need to be ready for the eventuality that the appraisal might not be the same as the market value.
Both buyers and sellers should equip themselves to cope with the challenge. Lenders calculate the loan amount on either the purchase price or the appraised value, whichever is the lower rate. When a buyer applies for a 10% down loan but the appraised value is low, the loan amount will be considered on the basis of the appraised value. This will make the necessary down payment 10% of the appraised value with the addition of the differential amount between the purchase price and the appraised value.
This extra cash has to come from the buyer and if he does not have it or is taken by surprise by the low appraisal, then the transaction can be in jeopardy. This means extra work for the seller also as he has to restart the whole process of finding another buyer and all the multiple-offer advantages goes to waste.
To safeguard against such possible scenarios, the seller should ensure that the buyer has enough extra cash in case a large down payment becomes necessary and that the buyer is also aware of the possibility of a low appraisal. This is so that he is not taken by surprise and wants to renegotiate the whole deal. Buyers too should be prepared that they may to eventually make a larger down payment than previously thought. Here is where qualified real estate agents are so useful as they are experienced in such matters and can anticipate difficulties and know how to overcome them.