If you are determined to offer more than you think the home is worth, write in a contingency that the seller pays for the appraisal if the home doesn't appraise for the purchase price. That way, you can back out through your appraisal contingency if the home doesn't appraise for contract price, and you don't have to foot the bill for the appraisal. The lower appraisal will give you an opportunity to renegotiate price with the seller and the seller will have the benefit of a third party opinion on price.
And while a decidedly small percentage of people in the real estate business seem to adhere the the ethics we are supposed to live by, how would this approach be viewed from an ethics perspective?
Make a real offer and let the chips fall where they may.
Beyond that, if it's only worth (in your estimation) $600,000, then why would you be willing to pay $625,000? I certainly wouldn't.
The simplest solution is just to offer what it's worth. You think it's worth $600,000? Then offer $600,000. I understand your reluctance to pay for the "seller's reality check." Receiving an offer of $600,000 on a property listed for $700,000 should be a reasonable reality check, and that's free. Accompany your offer with your list of comps and your analysis of why the property is only worth $600,000. Don't get tied up in conditional offers when an unconditional one will work better.
Hope that helps.
For instance - If he accepts your $625 k offer then great, you get the appraisal.
You get your house.
If he declines your $625, then you don't spend the money on appraisal.
If he counters your offer and still asks $725 - let him know that you won't pay that. Let him know that it would need to appraise at 725k for you to pay that. Let him know you won't foot the bill for the appraisal.
Either way- they won't think you're serious until you write an offer- so start there and address the appraisal later.
The seller is waiting for someone to do a no-look offer and has been for some time. I see value in the property, so I was going to offer something within the seller's range.
I have to bring the seller back to reality on the value of the property, but I don't want to do it at the cost to me, $500 for an appraisal. When the value comes back at $600k and he walks away, I'm out the $500. I would instead like to say, "Hey seller, I think your asking way too much, but if you think your property is worth that amount, I'll come in at your price, but you have to agree to pay that price, or appraisal, whichever is less."
This will secure my monies in the event the appraisal comes back low and he wants to walk away.