Home Buying in 92008>Question Details

datspnkrok,  in Carlsbad, CA

Hello, I have a unique situation on my hands. I am a CA broker with a question regarding the validity of a purchase contract. I am personally

Asked by datspnkrok, Carlsbad, CA Mon May 27, 2013

inte They want $700,000.
It's worth $600,000 (I'm being generous)
Appraisal is expected at $625,000.

I don't want to pay for appraisal and for seller's reality check, I would like to lock them in on "700,000 or appraisal, whichever is less." so that when appraisal comes back, he can't walk away and must sell at the price.

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I would not offer more than you think the home is realistically worth. If you offer more than you or your client are actually willing to pay, you're assuming the appraisal will force the seller to reevaluate his unrealistic asking price, and I feel it's a waste of time to go that route. Instead, I would offer what you realistically think the home is worth. Maybe the seller will reject the offer. But if, as you say, the home is so grossly overpriced, it will just sit on the market and at some point the seller will either have to come down to a more realistic price or just take it off the market.

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.
1 vote Thank Flag Link Mon May 27, 2013
Thanks Kim, I totally agree, but I know someone with cash will come in and say 700,000 to get their foot in the door. Appraisal will come back at $625,000 and the buyer will happily walk, resulting in the seller to face reality and just sell while the investor gets the property at the same price that I have diligently researched it at.
Flag Mon May 27, 2013
I would never do this, because appraisals are completely unreliable for market value. What happens if you get a really dumb appraisal and it comes back over $700K.

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.
1 vote Thank Flag Link Mon May 27, 2013
Thanks Lance, I appreciate your honesty. Yes, the idea was simply a venn diagram of the offer price vs list price where my max was their min. I wanted to secure sale of the property at their minimum accepted offer, knowing that it would come in even less. I'm essentially trying to step them down into reality from their list price to the accepted offer price to the appraisal price. I would pay market price all day long :) I just know it won't come back at 700k :). Thank you.
Flag Mon May 27, 2013
I understand where you're coming from--I don't understand the confusion of the others--but it's risky for you. It's risky because the appraiser could come back with a higher number. Let's say $660,000. That's more than you think it's worth, and probably more than you'd be comfortable spending. But you'd then be locked in at $660,000...even though you only think it's worth maybe $600,000 and expected to pay no more than $625,000.

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.
1 vote Thank Flag Link Mon May 27, 2013
Thanks Don,
Yes, I'm willing to pay market price all day long as it's the value where supply and demand meet. That will come with the appraisal. I just want to lock in the property as it's nice property that needs work and my wife and I want to move into it and fix it up. I know at the end of the day it'll go for $625k, it's just how long until the seller realizes that he's definitely asking for an unreal price. Thank you very much for your feedback.
Flag Mon May 27, 2013
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
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I would never sign an offer to purchase, as a seller, that said I would accept whatever the appraisal comes in at without being able to say yes or no to it one it does. Your question is pretty hard to follow but I think that is what you are saying. Good luck with it, I would never let my client do it.
1 vote Thank Flag Link Mon May 27, 2013
I like Kim's answer and would add seller pays for appraisal if it is lower than the purchase price and transaction does not close due to the appraisal.
0 votes Thank Flag Link Sat Jun 1, 2013
I agree totally with Tiffany. I really don't think any seller's agent would advise his/her client to accept your offer as you would like to present it. We all have horror stories of "bad" appraisals. Besides, even in the event that the seller did accept your offer, do you really think if you were involved in a court action that a judgement would be given in your favor (as a licensed professional) to force a sale?
0 votes Thank Flag Link Mon May 27, 2013
Yes, the more I think about it, the more I realize that my appraisal is just an out-of-pocket loss I will have to deal with. I don't think it would ever get to an actual court case, but as described in my previous response to Lance, I essentially wanted to bring the seller to reality through a two step decrease process, instead of one drastic appraisal value drop. Basically I want to desensitize him to the amount of drop he's about to see once he accepts my high price but I walk away from the transaction based on the low appraisal price.
I'm going with Tiffany's recommendations. I'll let karma do the rest!

Thank you all!
Flag Mon May 27, 2013
Why not offer what you want to pay. Make it contingent on appraising at your offer price.
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.
0 votes Thank Flag Link Mon May 27, 2013
Thanks Tiffany, I agree with your approach, and have come to terms that i will just have to gamble with a higher offer to get my foot in the door and hope the appraisal comes back lower and they accept that amount. I won't go beyond my maximum affordability, so I'm just trying to get it as low as possible. The lender appraisal will be out of my pocket since I've even suggested to them to get their own appraisal to have a better understanding of the current market . They've declined so I'm assuming they will not be pre-agree to pick up the tab on the appraisal if we walk away. Hope honesty and karma prevails! Thanks for the input!
Flag Mon May 27, 2013
I'm looking to avoid paying out of pocket for his appraisal (reality check).
Flag Mon May 27, 2013
I agree with Tim, although I too am confused as to your specific question. If you try to lock your client into something you could invite a legal situation, so watch out.
0 votes Thank Flag Link Mon May 27, 2013
Yes, Tim, understandable. However, even the seller's agent is agreeing that it's listed too high. I want to be fair and give him the benefit of the doubt, but also protect me even against $1, as I already it will never appraise at that value, but don't wish to be the one giving him a free appraisal.

Cindy,

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.

Thoughts/comments?
0 votes Thank Flag Link Mon May 27, 2013
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0 votes Thank Flag Link Mon May 27, 2013
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