Monday, October 19, 2009
Negotiate When Property Doesn’t Appraise
Dear Sue
I am in escrow on my first home. Many people find this hard to believe since I am almost sixty years old!
Since I was competing against another buyer, I upped my offer to more than I wanted to pay. My real estate agent prepared a market analysis that indicated that I offered about $10,000.00 to $15,000.00 more than the property is worth.
I don’t want to do anything foolish, but I love everything about the house. The location and floor plan are perfect. It has all the charm that can only be found in an older home and it has been beautifully updated. I have been looking for two years and this is the only home that I can see myself living in!
My Realtor said that the lender would not lend on the property if it doesn’t appraise. She said that I would have to come up with the cash for the difference or cancel the escrow.
I have always been told that value is based on what a willing buyer is willing to pay and what a willing seller is willing to take. In other words, the property would appraise for the sale price. If that’s not the case, and the appraisal doesn’t come in at the sale price, will I be forced to come up with the cash? Unfortunately, I don’t have any extra cash so that isn’t an option.
How can I be sure that I am protected? I want the home but I don’t want to overpay. What should I do?
Fretful Frank
Dear Frank
Ask any homebuyer. Your situation is not uncommon. Today’s low interest rates, near bottom pricing, and tax credit incentives create competition for properties. Many buyers have been out bid on more than one occasion forcing them to up their offers. The winning offers are all cash because they are generally made without an appraisal contingency.
The first page of the California Residential Purchase Agreement, Line 2, Item J, defaults to an appraisal contingency. “Unless otherwise checked, a buyer is not obligated to buy if the property does not appraise at the specified purchase price.”
Obviously, your offer was accepted with the appraisal contingency in place.
Appraisers are very conservative in today’s climate. The collapse of the financial industry and decline in property values has created an extra level of caution when it comes to appraisals. An appraiser is not going to push the value up in a declining market unless the property warrants it.
You will not be “dead in the water” if the property doesn’t appraise. One can always renegotiate with the seller.
Buyers and sellers have been known to split the difference between the offer price and the appraisal value. If the buyer is short on cash, it is possible to trade personal property or write a secured or unsecured note.
I would definitely discuss the note option with your Realtor and lender because some lenders prohibit secondary financing by the seller.
Finally, the seller may agree to reduce the price to the appraised value. In any case good luck and don’t be afraid to negotiate. It could be a matter of good Home $$’s and Sense!
Check out more real estate news, information and listings at:
HomeTown Realtors
I am in escrow on my first home. Many people find this hard to believe since I am almost sixty years old!
Since I was competing against another buyer, I upped my offer to more than I wanted to pay. My real estate agent prepared a market analysis that indicated that I offered about $10,000.00 to $15,000.00 more than the property is worth.
I don’t want to do anything foolish, but I love everything about the house. The location and floor plan are perfect. It has all the charm that can only be found in an older home and it has been beautifully updated. I have been looking for two years and this is the only home that I can see myself living in!
My Realtor said that the lender would not lend on the property if it doesn’t appraise. She said that I would have to come up with the cash for the difference or cancel the escrow.
I have always been told that value is based on what a willing buyer is willing to pay and what a willing seller is willing to take. In other words, the property would appraise for the sale price. If that’s not the case, and the appraisal doesn’t come in at the sale price, will I be forced to come up with the cash? Unfortunately, I don’t have any extra cash so that isn’t an option.
How can I be sure that I am protected? I want the home but I don’t want to overpay. What should I do?
Fretful Frank
Dear Frank
Ask any homebuyer. Your situation is not uncommon. Today’s low interest rates, near bottom pricing, and tax credit incentives create competition for properties. Many buyers have been out bid on more than one occasion forcing them to up their offers. The winning offers are all cash because they are generally made without an appraisal contingency.
The first page of the California Residential Purchase Agreement, Line 2, Item J, defaults to an appraisal contingency. “Unless otherwise checked, a buyer is not obligated to buy if the property does not appraise at the specified purchase price.”
Obviously, your offer was accepted with the appraisal contingency in place.
Appraisers are very conservative in today’s climate. The collapse of the financial industry and decline in property values has created an extra level of caution when it comes to appraisals. An appraiser is not going to push the value up in a declining market unless the property warrants it.
You will not be “dead in the water” if the property doesn’t appraise. One can always renegotiate with the seller.
Buyers and sellers have been known to split the difference between the offer price and the appraisal value. If the buyer is short on cash, it is possible to trade personal property or write a secured or unsecured note.
I would definitely discuss the note option with your Realtor and lender because some lenders prohibit secondary financing by the seller.
Finally, the seller may agree to reduce the price to the appraised value. In any case good luck and don’t be afraid to negotiate. It could be a matter of good Home $$’s and Sense!
Check out more real estate news, information and listings at:
HomeTown Realtors
# posted by Sue Thompson @ 12:56 PM 
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