My husband and I have been house hunting for nearly 2 years with extraordinarily bad luck. We had a verbal acceptance of an offer reneged on. We built a new home and lost it when my husband got laid off 2 weeks before closing. We’ve been outbid, we’ve had crazy counters, it’s been nuts.
Last week, we found a great house, good location, been on the market since February. We offered within 5K of the asking price and they accepted the same day.
We were pre-approved for the mortgage, so we immediately got the home inspection (everything checked out) and got the appraisal ordered. Everything was rolling along, until we got the appraisal - 40K less than our contract price.
Our banker chirpily told us the bank would still finance our loan, if we came up with the 40K difference out of pocket. That’s just crazy talk 1) we don’t have an extra 40K 2) who would buy a house for 40K more than it appraised?
We offered the sellers 10K above the appraisal price (10K that we would pay out of pocket) and told them they didn’t have to make any repairs on the repair list (which was short, anyways). Their realtor told us that she could sell that house all long for close to the asking price (10K under) and that she would advise her clients to reject our offer. She suggested we work with ANOTHER lender, but I don’t see the point of that. Appraisers use the same comps and the same formulas, I don’t want to pay another appraisal fee to get another crappy number the sellers won’t accept.
So, I’m pretty bummed. I loved the house (great kitchen, gorgeous landscaped backyard, 20 minutes to work). I think the sellers aren’t being realistic about the market - Zillow (although not perfect) had nearly exactly pegged the appraisal value. The house right next door sold last summer for 20K less than their asking price (and it had and extra bedroom, and a pool!). The sellers had willing and able buyers on the hook and we’re going to walk away from this escrow. I don’t want to pay more than the home is worth, but man, it’s still heartbreaking. I feel bad for the sellers too, it’s a lovely home and they put in a lot of time and upgrades. How sucky for them their pretty house isn’t worth what they think it is!
I’ve never understood how if a house appraises for less the lender won’t fund it. I mean, you’d think they’d be thrilled, right? It means you’re more likely to keep paying on the loan rather than go into foreclosure. Greedy, lazy motherfuckers they is.
I’ve never bought a house, but hopefully I’ll be able to in a couple years. So this may be a stupid question - is it possible to get an appraisal before you make an offer and get an inspection and everything? Or does the appraiser need to have a home inspection report so they can make an accurate appraisal?
It just sucks to go through all of the steps and then have the appraisal be the last thing that derails the whole deal.
And is this appraisal thing a recent addition to the house-buying process (post-housing bubble burst)? Like I said, I’ve never bought property, but from my extensive HGTV-watching experience, it seems like no one ever mentioned appraisals on any home-buying tv shows before a couple months ago (likely taped a while before that).
And what happens when there’s a bidding war on a house? By definition, isn’t a house worth what someone is willing to pay for it? Would an appraiser just tell them they’re wrong and it’s not really worth that much?
And as far as the bank getting an appraisal because they want to be sure the house is worth the amount of the mortgage, in case the bank has to step in and sell the house and get their money back - there’s no guarantee that the appraised value today will be the same 6 months or a few years from now. The appraisal today could be 100% accurate and they approve the loan - but if the market goes down further in your area, the bank still won’t get their money back.
Sure you can. You can get an appraisal anytime you want, assuming the homeowners are OK with it. But an appraisal costs about $300 (at least around these parts), so it’s not really something you want to do unless you’re really interested in buying the house.
I was just thinking that if you can get an appraisal at the beginning of the process instead of at the end, then you can bargain better. If it appraises $30K under the asking price, then you can make your starting offer $40K or $50K under asking and know where your bargaining limit is. And then if the homeowners refuse to go that low on the price, at least you haven’t wasted quite as much time. And maybe an appraisal is cheaper than a home inspection, getting a lawyer to check over all the paperwork, etc…
But I can’t help wondering what the current homeowners should do next. Presumably they’ve lost this buyer. Now what? Are they going to try to find someone else to pay the appraised price? Get another person who agrees to a higher price and hope the next re-appraisal is a higher price? Find someone willing to pay more than the appraised value? Frankly, I can’t image why anyone would pay a lot out of pocket to pay more than the house is worth, unless they’re desperate to get that particular house.
Can you appeal the appraisal? I know someone who’s in that process now, because the house they made an offer on was appraised for 20k less than their offer. In their case, the only other house that sold in the area in the past 4 months was a short sale, and that’s all the appraisers compared it to, so they’re appealing to have them look further back in time or further out in area to have a more accurate representation. Do you know what comps were used in the appraisal? Were there a lot of short sales and foreclosures?
Here’s how to do it (Realtor talking here). Write an offer for what you think it is worth and what you are willing to pay. Include in the offer the contingency that it must appraise for $X and/or must pass inspection. Optionally, you may include the “right to cure” by the Seller, so if anything is found faulty, they may fix it at their expense.
You can ask the Seller to pay for any of these items as a condition of offer acceptance – of course, they can refuse.
If it doesn’t appraise, you can renegotiate.
I had two offers recently that didn’t appraise for the amount of the contract. In one case, the Seller reduced the price and the deal went through. In the other, the Seller said, “No way,” and took it off the market.
One incentive for a Seller to accept a lower price is if they don’t, they will have to find an all-cash Buyer; one who doesn’t need any financing. Those are far fewer than financing Buyers. So it might be in their best interest to accept a lower price rather than none at all.
Appeal to whom? The bank hired an expert. You can try another appraiser, but why would the bank consider that? And it might appraise about the same. All appraisers have access to the same public records and only a small part of their job is raw opinion.
And a short sale isn’t necessarily a bad comp. If the only sales in the area are short, then those are the prices buyers are willing to pay.
A bad comp is one that isn’t an arm’s-length transaction, like from a parent to a child.
The only chance you have is to prove the appraiser incompetent by finding a comparable sale in your favor he overlooked. Maybe he didn’t measure right. Maybe he omitted something. Possible, but not likely.
I think their realtor is delusional. Also, she’s probably the one who set the asking price in the first place and doesn’t want to lose money on her commission. The house has been on the market for five months - clearly, she can’t sell the house at close to asking price “all day long”. Good luck finding a buyer with $40k cash who enjoys overpaying on property!
Keep an eye on the house while you continue to shop around. In a few months, they might change realtors or drop their price after all.
So, did the realtor actually present your counter offer, or just tell the sellers that it wasn’t worth it? Did the buyers just reject the counter out of hand, or did they re-counter? This realtor sounds kind of bad.
I think you are in a good position. It sucks emotionally, but rationally you do not want to pay more than the house is worth! Don’t think of it as losing a house (you didn’t lose anything!). Think of it as dodging a bullet.
Keep an eye on it. If the sellers need to sell, they will come around. Heck, stick with the appraised value as your offer and see if they will counter with appraised + 10. You are in the driver’s seat here.
Plus, as nice as this house seems to you now. Another excellent house will come along sooner or later.
The Realtor is likely legally bound to present all offers to the sellers. But really, without contacting the sellers directly, how could the buyer ever know for sure?
Thanks for all the responses - I was a little tired of the emotional house hunting roller coaster last night.
At the time the selling agent spoke to our realtor, she had not presented our counter to the sellers. She told our agent she would suggest they reject the offer. They have until tomorrow at 6:00pm to officially respond.
A lot of people posted with great answers - like, the bank won’t finance a loan for over market value because if we default, they won’t be able to sell the house to recoup their money. Sure, a buyer with lots of cash can buy a house that appraises for less, but they have to make up the difference. If you have a lot of cash and really love the house, it’s an option (but I don’t think it’s a good idea for us).
I’m biased, but of course I think the seller should consider our offer and will be disappointed when they reject it. Appraisers use the same formulas and comps, so if they get another buyer and a different lender and a new appraisal, there is a good chance the house will appraise for a similar amount (even if our appraiser was 10% off, that’s still only 10K - which we offered). We’re pretty sure we were the first buyers to get an offer accepted and get to the appraisal stage, I bet it was a horrible “sticker shock” moment for the sellers (who seem to be very nice people).
In an amusing turn, there is ANOTHER house on the same street with a similar floorplan that came on the market 4 days ago. Those sellers are asking 20K under our sellers asking price. The house is farther up the street (so will have less road noise than our first house - you could hear highway 78 from the backyard), but doesn’t have as many upgrades (no crown molding, no travertine, no beautiful landscaping). It still has my dream kitchen (with amazing center island), huge walk in pantry and this laundry room is upstairs (which I consider a plus). We’re going to go look at it at lunch, it doesn’t have the “wow” factor of my dream house, but the bones are there - we can always put down tile and paint walls.
We needed an appraisal in order to get our private mortgage insurance removed. The person they hired did a half-assed job, missed some major features of the house, and used houses totally different from ours in size, location and features as price comparisons. I don’t know if you could call it an appeal, but we certainly bitched enough that they made some changes and raised our assessment.
The appraisal came in 40k low on a house in the 100k range? :eek:
I hope it works out - it already sounds like a better situation; you can always put in crown molding and landscaping, but you can’t move the interstate!
Ha! Sounds like that one is the one you need to buy - the traffic noise is a non-remediable defect (not sure that’s the official term - but it refers to things you can’t change like being on a busy intersection, train tracks, paper mill next door etc.).
And as you noted: you can always put down tile, paint walls, add crown molding, and do the landscaping. In fact you can do most of that yourselves and save a bundle. Go for it!!
A funny (?) side story: a friend is trying to sell their house - and it’s been on the market for well over a year. It’s a depressed area where larger houses simply aren’t selling. Yet they had it appraised for a refinance - and the appraisal came in at something like 80K more than they’d listed it at while trying to sell. So it came in at a higher figure than the place could sell for. Odd.
