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Will it Appraise?

March 8, 2010

We have had a recurring challenge with offers coming in substantially over asking price.  This is, of course, due to higher demand than we have properties to meet that demand.  The problem is that even with cash, the contract, often calls for an appraisal.  The appraisal is wanted and/or needed for financing, to ensure that the value, in the moment, is the same as what the buyer and seller agree to be the purchase price.  In the moment, however, is often colored by emotion as “the buyer really loves this house” or “they just can’t find anything,” and “we have made so many offers, so we really want this one to stick” and on and on.  All valid reasons that drive up prices in a restricted market.

Everyone thinks that the higher the price, the more favorably the Seller will consider the offer.  That is true, but the Seller really looks at the bottom line, what is left after all the costs to the Seller.   A higher price is great, but if it has to be adjusted because the appraisal contingency is checked and the value comes in less than the agreed upon price, then the Seller and Buyer are back to negotiating price.   It is really unfair to other Buyers when an offer comes in, say $30,000 over asking price, effectively buying the right to re-negotiate terms if the appraisal does not come in at the original agreed upon price.  Note that if the appraisal ever comes in higher than the agreed upon price, the Buyer seldom will make an adjustment upward so that the Seller would benefit.

 Most Sellers have now become aware that appraised price may be different that agreed upon price and take the chance of a price adjustment during the escrow period. A second alternative is for the Seller to ask the Buyer to waive appraisal contingency, whether financed or cash.  In this case the Buyer is saying that if the property is worth $30,000 over asking that they have the cash reserves to back it up and will make up any difference between appraised value and purchase price.  More aggressive offers note that the appraisal contingency has been waived when the offer is presented to the listing agent.  A third alternative to protect the Buyer is to make an offer with a reasonable and justifiable price with the appraisal contingency in play.  Unfortunately this last option may not get the Buyer that perfect home.

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