The home price perception index is a valuable tool that helps us anticipate potential appraisal problems.
When you write an offer in today’s housing market, you may have to compete with other buyers for the same property. If more parties are interested on their home, sellers will happily entertain multiple offers. Bidding wars are inevidable.
When it comes to bidding wars, most eager buyers will offer more than list price to secure the deal.
Quite frequently this leads to an appraisal problem.
The Home Price Perception Index
The gap between the estimated home value and the appraised value is tracked by the Home Price Perception Index (HPPI). A positive HPPI value means that the appraiser’s value is higher than the home owner’s estimate. A negative number means that the appraiser’s value is lower.
The HPPI is published by Quicken Loans and varies by city and region.
The chart on the top of this post shows a positive HPPI in some of the hottest housing markets in the country, such as Denver and San Francisco. In the Midwest, on the other hand, you will find a negative HPPI. Although Columbus is not listed on this chart, it is more likely that appraisals in Central Ohio are below the home owner’s estimate or the offered price.
Why Worry about the HPPI?
Here’s why you need to worry about the Home Price Perception Index:
If the appraisal comes in below your offer, your lender will base the loan amount on the appraisal, not your contract price. As the buyer you will have to come up with the difference in cash or renegotiate the contract with the seller (if that’s even possible).
The Contract Clause that Protects Buyers
We protect our buyers with an appraisal clause when we write an offer. It basically says that the contract is contingent on the home appraising at or above the offer price. This allows my buyer to renegotiate the contract or even get out of the contract, if the appraisal comes in below our offer price.
How does your Real Estate Agent protect you?
I have a lot of experience handling multiple offer situations. That’s why I can anticipate challenges that may arise before closing and deal with them right away. By anticipating and solving problems ahead of time, I can guarantee a hassle free transaction without delays.
Do you have questions about this and other contract contingencies?
Call or text me at 614-975-9650! I will gladly help you out!