Competitive homebuyers in Hamilton's hot housing market are often facing a critical disagreement as they try to buy a house – the property appraiser doesn't share their opinion about how much the house is worth.

And that can leave homebuyers without the financing they need to close the deal. 

The tension, between eager buyers and sellers and often conservative appraisers and bankers, is arising more in the hot market, local real estate experts said. ​

Lately, some homes for sale have been attracting “five, six, seven” offers, said veteran local appraiser Bob Schinkel, who owns Schinkel Appraisals, a local firm. The winners may be blinded by their victory.

“There’s a good chance that they’re so excited about getting the house that they’re willing to pay more than market value,” he said.

'Things like this can set a crux in the deal'

The appraisal is typically the most the mortgage bank will allow a buyer to borrow on the house. If they couldn’t pay their bills tomorrow, and the bank had to foreclose, the bank wants to know it could sell the house to cover the debt.

So when the appraisal comes in under what the buyers have agreed to pay, they may have to scrounge up thousands of dollars more for their down payment, or back out of the deal entirely.

Here's, roughly, how it works. For the sake of round numbers, say a house is on the market for $200,000. A buyer finds out she has approval from the bank to get a mortgage for $160,000, so she offers $200,000 on the house, planning to pay a $40,000 down payment.

But before agreeing to the deal, the bank hires an appraiser to go take a look at the property, to analyze the house and to compare it to other houses in the same neighbourhood of similar size and quality. The appraiser's report goes back to the bank, along with a price he thinks it's worth. If that price is less than the $160,000, the bank will most likely only grant a mortgage for that amount, even though the buyer was approved to borrow more. 

“They’re hoping to get 80 percent financing but the bank will only lend on the lower of the two, the purchase price or the appraisal,” said Bill Boros, a residential appraiser at Pocrnic Realty Advisors.

The roadblock is popping up more in an escalating market, said Suzanne Boyce, a local mortgage broker who owns the Personal Mortgage Group. 

She said it's important for buyers to make sure they've completed their full application for a mortgage before making an offer, not just submitted initial pre-approval paperwork. 

“It’s something that the public should know about when they’re purchasing,” she said. “Things like this can set a crux in the deal.”

Sometimes buyers try to increase their competitiveness by making their offer “firm.” But if they’ve gone into the offer without making it conditional on their loan coming through, they could be in trouble – facing a “lawsuit or loss of their deposit or both,” Schinkel said.

‘You always feel that pressure’

The situation underscores a few characteristics of Hamilton’s housing market.

There aren’t a lot of homes on the market, and the low supply increases demand. More homes sold in July than any July for the last 10 years, according to the Realtors Association of Hamilton and Burlington. But the inventory of homes for sale at the end of the month was 8.4 percent lower than the same month last year.

The fever inspires some homebuyers to seek out charming homes, sometimes fixer-uppers, in previously less popular neighborhoods. But appraisers may not be able to find supporting sales of similar diamonds in the rough nearby to support their estimate of the home’s worth.

The market is seeing an influx of buyers from elsewhere, like Toronto, who are surprised to see such “low” prices compared to their previous cities and may not balk as prices rise in a bidding war.

Realtor April Almeida with City Brokerage had an experience recently where an appraisal came in several thousand dollars lower than a client's offer.

"They can walk away or they have to basically come up with the difference," Almeida said. 

Almeida's client ended up switching to a mortgage broker instead of taking a loan from the client's bank. But Almeida said the hiccup was frustrating.

"We’re seeing more of it here, and it’s making me nervous that [appraisers are] trying to quash this market," she said. "Or are they giving into this perception of this bubble thing." 

The client ended up switching banks and finding a new loan through a mortgage broker.  

Boros said appraisers know their estimates may disappoint some people, but he said his duty is to the lender, not to the buyer.

“You always feel that pressure,” he said. “People are trying to buy a house. It’s a matter of explaining to them: We have to base it on the market.”