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Appraisal Contingency
Posted on 6/23/19 at 10:23 pm
Posted on 6/23/19 at 10:23 pm
We have a buyers agent in somewhat of a sellers market who keeps advising that we should offer well above listing price and what comps suggest because the appraisal contingency will kick in and the house won’t sell above this. This doesn’t seem right, but I can’t find anything to state otherwise. What are the drawbacks? What’s to stop someone who can afford $500K from putting $400K offers on $300K houses to get them and using this contingency to only pay $300K if it appraises at this amount?
This post was edited on 6/23/19 at 10:35 pm
8
Posted on 6/23/19 at 10:53 pm to Ingloriousbastard
There is typically a contingency in the purchase agreement for the buyer to have an “out” of the purchase agreement if the appraisal comes in lower than the contract price.
This by no means forces the seller to drop the price to the appraisal price. Now sellers often will since most people are hesitant to pay more than appraisal. If financing as most are, the buyer will have to bring the additional money differential plus the % down payment.
This by no means forces the seller to drop the price to the appraisal price. Now sellers often will since most people are hesitant to pay more than appraisal. If financing as most are, the buyer will have to bring the additional money differential plus the % down payment.
Posted on 6/24/19 at 7:51 am to Ingloriousbastard
The biggest drawbacks are:
1) The seller doesn't have to sell at the lower appraised value, in which both of you will just walk away from the transaction. This will end up wasting everyone's time.
2) You will be out of money for the inspection and appraisal.
Tell your agent to do his/her job and give you the comps. Based on the comps, y'all make an informed decision on what to offer.
1) The seller doesn't have to sell at the lower appraised value, in which both of you will just walk away from the transaction. This will end up wasting everyone's time.
2) You will be out of money for the inspection and appraisal.
Tell your agent to do his/her job and give you the comps. Based on the comps, y'all make an informed decision on what to offer.
Posted on 6/24/19 at 8:11 am to Ingloriousbastard
A big drawback is that appraisers are most definitely influenced by the purchase price.
If you think appraisers don’t know the purchase price of the home they are appraising, you’re wrong.
If the appraiser can justify $300k, it’s not difficult to conclude $310k if necessary.
At some point an appraiser can’t justify the price but even then they normally conclude what is a “high” price in there mind.
If the contract is for $425k and the appraiser concludes $415k you think you are only $10k apart. But the reality is that the appraiser actually thinks it might be $410 or $405 but was influenced by the $425 number.
You’ll pay more if you rely on the contingency to win the contract.
My opinion is that you are talking about a place you’ll be living in everyday. If you really like it, do what you have to do to win the bid.
Don’t offer a price you don’t want to pay hoping the appraiser might bail you out..
If you think appraisers don’t know the purchase price of the home they are appraising, you’re wrong.
If the appraiser can justify $300k, it’s not difficult to conclude $310k if necessary.
At some point an appraiser can’t justify the price but even then they normally conclude what is a “high” price in there mind.
If the contract is for $425k and the appraiser concludes $415k you think you are only $10k apart. But the reality is that the appraiser actually thinks it might be $410 or $405 but was influenced by the $425 number.
You’ll pay more if you rely on the contingency to win the contract.
My opinion is that you are talking about a place you’ll be living in everyday. If you really like it, do what you have to do to win the bid.
Don’t offer a price you don’t want to pay hoping the appraiser might bail you out..
Posted on 6/24/19 at 8:48 am to Ingloriousbastard
Unless you live in Canada where it’s common to list low then take multiple offers and sell much higher your agent is an idiot. Offer what you feel is fair and that you’re comfortable with.
Posted on 6/24/19 at 10:09 am to Ingloriousbastard
Fire your agent. Guy is an POS that just wants the commission
Posted on 6/24/19 at 11:39 am to GeauxZone90
I’ve been contemplating this, but I’m fairly inexperienced with real estate, and I want to make sure I’m not the issue and blaming him for it. We’ve only looked into making a couple of offers with him, but for each he’s wanted to add both an escalating clause (basically telling them we will go higher up to a certain point-which I don’t like) and has argued with us that we should also offer more up front (again, above listing and comps) in our initial offer in order to get the house, if we really love it. The point keeps getting brought up that the house can’t ultimately sell for more than it’s worth, because it won’t appraise for that.
This post was edited on 6/24/19 at 11:47 am
Posted on 6/24/19 at 12:21 pm to BornKjun
quote:
A big drawback is that appraisers are most definitely influenced by the purchase price
This is correct. Appraisals are a joke and mostly just go by square footage and comps.
quote:
If you think appraisers don’t know the purchase price of the home they are appraising, you’re wrong.
It's literally on the second page of every appraisal i've had done.
Posted on 6/24/19 at 12:34 pm to GeauxZone90
quote:
Fire your agent.
+1.... Unfortunately, I've had the experience of working with bad/ill-informed realtors and good ones.
If the seller feels like the house is worth more than the appraisal comes back for and is unwilling to drop the price, you'll be out your appraisal $ and inspection $.
I went through a similar situation about a year ago buying my current home. It was a FSBO and we really like the house. The offer we landed on was somewhat high in my opinion, and I was worried about the appraisal coming in lower than the contracted price. I discuss this with the seller prior to getting the appraisal back and they claimed they weren't prepared to lower the price if the appraisal came in low.
Luckily, the appraisal came back slightly higher and the deal went through. If not, I was likely going to have to walk away from the deal (or come up with the $ to cover the difference).
Your realtor advising you to do what you are saying seems like really bad advice.
Even though most buyers won't pay over the appraisal price, that ultimately doesnt mater. Its all about what the seller "feels" there house is worth.
This post was edited on 6/24/19 at 12:36 pm
Posted on 6/24/19 at 12:41 pm to Ingloriousbastard
quote:
The point keeps getting brought up that the house can’t ultimately sell for more than it’s worth, because it won’t appraise for that.
Of course it can sell above appraisal. It can happen if the buyer is a cash buyer obviously, but it can also happen if the buyer has a large down payment. The loan amount will be based off the appraised value so the loan amount will be a little less so the buyer just has to come to closing with a little more cash. I’ve done this myself for a house I really wanted in a neighborhood where nothing else was for sale.
Posted on 6/25/19 at 11:21 am to Ingloriousbastard
Appraisers are lazy, they take your offer price, add $1,000 to it and then find comps to match up. Whatever you offer on the house, as long as it’s not crazy, the appraiser will probably support you.
Posted on 6/25/19 at 11:09 pm to Ingloriousbastard
If the appraisal comes in below the price you put it under contract for, the appraisal contingency is just a way for the buyer to get out of the purchase agreement if the seller won’t reduce the sale price based on appraisal. The seller doesn’t have to lower their price if they don’t want to, which would mean the buyer has to either come up with a larger down payment to cover the difference above appraised value or walk away from the deal.
Get a new agent ASAP. This guy is just setting you up to waste a bunch of time and money if there aren’t comps to justify how much above list price you offer. You’re going to be out of pocket $800-1000 for appraisal and inspection costs if a seller doesn’t want to come down on the price after the appraisal comes in below the price on purchase agreement
Get a new agent ASAP. This guy is just setting you up to waste a bunch of time and money if there aren’t comps to justify how much above list price you offer. You’re going to be out of pocket $800-1000 for appraisal and inspection costs if a seller doesn’t want to come down on the price after the appraisal comes in below the price on purchase agreement
Posted on 6/26/19 at 8:54 am to Ingloriousbastard
quote:
Ingloriousbastard
Where are you looking to purchase specifically?
Posted on 6/28/19 at 12:24 pm to Hermit Crab
quote:
Appraisers are lazy, they take your offer price, add $1,000 to it and then find comps to match up. Whatever you offer on the house, as long as it’s not crazy, the appraiser will probably support you.
Not 100% sure this is always the case any longer. Back in the early 2000's, it most definitely was. But I have recently both bought and sold a home where the appraisals came back lower than the sales price, both by about $2,000. On our current home, the seller was at first not willing to come down, but then realized that she'd likely have to go through all of this again with the next buyer. Ultimately, she reduced her asking price. On the rental property we sold, the buyers had to get it appraised TWICE by different appraisers because the first one would not release his report to a new lender that they switched to. Both appraisals came back at exactly the same amount, $2,000 below the contract. That makes me think that each appraiser also has access to previous or recent appraisals on the property.
Posted on 6/29/19 at 9:28 pm to S1C EM
Reading through this thread I was laughing and rolling my eyes. Thinking I’d just say what I always say: Realtors are the worst possible sources of advice when it comes to the homebuying or home selling process.
But I see everyone else has already pointed out what an idiot you’ve chosen for a realtor.
Seriously. Don’t even bother explaining yourself. Just call him and fire him. Let him know you want to go a different way.
Don’t lose a nanosecond of sleep over it.
But I see everyone else has already pointed out what an idiot you’ve chosen for a realtor.
Seriously. Don’t even bother explaining yourself. Just call him and fire him. Let him know you want to go a different way.
Don’t lose a nanosecond of sleep over it.
This post was edited on 6/30/19 at 11:57 am
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