Bidding Wars Drive Prices Over Appraisal

Bidding wars can leave you with cash shortfall (They also always leave you with a reality shortfall called Buyer's Remorse.)

here's a little something to ponder before a bidding war: Will the bank agree with how much you just paid for that home?

One would generally hope they don't agree. The house has an actual economic value based on rents and it has the pricetag a frustrated, house hungry, overleveraged, competing throng will drive it up to. Those have little to do with one another.

Appraisals are coming in below purchases price on some deals, with the potential to scuttle a transaction, lose a deposit or, at the very least, force buyers to look for other sources to cover the shortfall.

Amazing to think there is one piece of the Real Estate industry enforcing some tiny piece of sanity.

Mr. Gaetano wonders whether some appraisers have become more conservative and are al-most anticipating a rapid drop in prices.

So . . . if the current prices are only supported by 12 bidders per house and record low interest rates, what happens if either of these things ceases to be true? The "value" of a house is entirely driven by interest rates and psychologically maximizing buyer emotion.

It's up to your financial institution to decide if it wants an appraisal unless you have less than a 20% downpayment, in which case you need mortgage default insurance and an insurer like Canada Mortgage and housing Corp. takes on the responsibility.

Your fellow taxpayers take on the responsibility. Think about that next time someone in your office or your family comes in all flushed with winning a bidding war. You are on the hook.

he had a client who recently bought a property in Toronto's trendy high Park area for $1.6-million and the appraisal came in at $1.1-million, forcing the client to juggle some other investments to cover the shortfall the bank would not cover.

As opposed to taking the hint? Maybe banks should pre-approve a property's price before the bidding begins.

"Anytime you get into a seller's market where you are looking at multiple offers, the market in that place at that time increases the value of the property."

"Value" is not the right word here. "Price" is good. "Price" is market sensitive. "Value" implies something inherent.

The message to consumers is to tread carefully when they make an offer and make it conditional on financing.

Conditions? On a purchase offer? Ha ha. You'll never win a house that way. Oh, perhaps that's the idea . . .