Your Home: ‘Bridesmaids’ driving up housing prices in under $250K segment

Let Chad Taylor guide you through today's real estate market.

By Chad Taylor

Have you ever heard the saying, “always a bridesmaid and never a bride”? Well, that is how a portion of the home buyer pool feels right now, especially in the $250,000 and lower price ranges.

As I write this column, the Shawnee Mission School District only has 0.6 months of available housing inventory priced less than $250,000.00. The average days on market in the price range is seven days. That’s right, a whopping seven days on market. Due to super-low inventory and unprecedented demand, the under-$250,000 price range is brutal right now for home buyers.

Just this past weekend, we listed a home in Roeland Park for slightly more than $200,000. We received six offers on the home and the seller’s accepted offer exceeded 10% over the list price. Each and every offer that came in over the list price was presented by a buyer who was tired of being outbid by another buyer. Each buyer had been looking for a while and were ready to put their search to rest. Unfortunately, only one buyer got their wish. The other five are still searching, to the best of my knowledge.

As I said earlier, potential home buyers are tired of being the bridesmaid and are ready to “get hitched” to a home!

The challenge that these bridesmaids have created in the under $250,000 market segment is that the contract sales price is often way over the list price. This can cause an issue when the purchase is being financed. I say that because cash purchases do not require one very important step that financed purchases do require: an appraisal.

The problem with appraisals below contract price

In some areas of town, small homes are selling for an unprecedented dollars-per-square foot number.

Appraisers are charged to pull recent market data to support the contract sales price. If they cannot find recent sales to do so, a seller could be at risk of under-appraising. Remember that the appraiser works for the bank who wants to make certain that if the buyer defaults on their loan, the bank will be able to recoup its losses. In addition, appraisers are under tremendous pressure these days from the appraisal management companies. These companies scrutinize appraisals to make sure that they are accurately supported by relevant and recent comparable sales.

If an appraiser cannot support the contract sales price with recent comparable sales and appraises the home at a lesser value, one of four things can happen:

  • The buyer provides the appraisal to the seller and asks them to adjust (lower) the sales price to the appraised value.
  • The buyer, in an effort not to lose the home, agrees to bring additional certified funds to the closing table to offset any appraisal shortfall.
  • Buyer and seller partner to cover an appraisal shortfall.
  • The buyer cancels the contract.

As you can see, just because a home sells for a record-breaking price does not mean that the sale is cut and dried. There are risks associated with such extreme jumps in the sales price. A rule of thumb that I share with my sellers is that any money earned above and beyond the sales price is simply “funny money” or “Monopoly money” until the appraisal is completed and supports the contract sales price.

This Sponsored Column is written by Chad Taylor of the Taylor-Made Team and Keller Williams Realty Key Partners, LLC. The Taylor-Made Team consistently performs in the top 3% of Realtors in the Heartland MLS. Please submit follow-up questions in the comments section or via email. You can find out more about the Taylor-Made Team on its website. And always feel free to call at 913-825-7540.