Home Buying in Santa Clara>Question Details

Sebekhoteph, Home Buyer in San Jose, CA

Home Valuation Lower than Bid Price?

Asked by Sebekhoteph, San Jose, CA Fri Feb 26, 2010

How is home value determined? If I bid for a house, is it possible for the home value to come lower than my bid price, or sellers asking price? In that case, what should a buyer do?

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As the others mentioned below, you should have an appraisal contingency written into your contract. If the appraisal comes back lower than what you have offered, then you can renegotiate your price. The seller is then put in the position of either lowering the price for you, or you canceling the contract. If you cancel, then they have to put the home back on the market. However, now that you have provided the seller with the lower appraisal, it becomes a "material fact" and the seller must now disclose that "materical fact" to all future prospective buyers. It is usually in the sellers best interest to go ahead and sell you the home for the appraised value.
0 votes Thank Flag Link Fri Feb 26, 2010
The simple answer is this. Depending on the market you may have to overbid but as long as you have an appraisal contingency you are protected.

If the appraisal comes in lower we can't finance the property based on the bid price, we base it on the appraised value. The seller and listing agent should know that.

The best way to go is make sure your realtor has the negotiation skills to handle it when the time comes.
0 votes Thank Flag Link Sun Feb 28, 2010
Hi Sebekhoteph,
As the experts below have mentioned, make sure that you DON'T waive your appraisal contingency; in this housing market, people are over-bidding on property, so just make sure if you really like a property be prepared to make a very competitive offer, most of the time over asking price.

Home value is determined on recent comps in the surrounding radius; also taken into pricing is the condition of the home ... does it have deferred maintenance? Is it rich with upgrades? Original condition? Location? The appraiser will formulate all these elements to come up with the home value.

Good luck! Happy bidding!

Sincerely,

Sara Greenwood
0 votes Thank Flag Link Fri Feb 26, 2010
Home value is determined buy comparable sales and the condition of the home. Yes it is possible for the home to appraise for less. As to what you should do, 1st of all when you make your bid you should have a through set of comparable homes from the area. 2nd bid only at or alittle above what the comparables say,
now rememberif the home is really fixed up and your comparables are not you have to alow for that and bid accordingly. Since you will have an appraisal contingence ( you should ) and the home does not appraise for your accepted bid, then you can renegotiate from there. Just as a note, so listing agents are asking for bids, that have NO appraisel contigences, this often happens on the low end and in an expected multiple offer situation. In this case you have to look at how desirable is the home and go from there.
I hope this helps, feel free to contact me with any questions.
Regards,
Allyson
408-705-6578
allyson@homesbyallyson.com
DRE# 01397256
0 votes Thank Flag Link Fri Feb 26, 2010
If you have an appraisal contingency in your contract, you can cancel your purchase. If you want to go through with it, your mortgage lender will ask you to put more cash down, usually the amount that is the difference between the purchase price and the appraised value.
0 votes Thank Flag Link Fri Feb 26, 2010
An appraisal will leverage recent sales of comparable properties in the same general location. It will make adjustments based on various criteria. It's not an exact science so one appraisal would likely not be the same as another on the same property. As a buyer you need to be comfortable with what your willing to pay for a specific property based upon the appraisal and your interest in a specific property versus others that are available.
0 votes Thank Flag Link Fri Feb 26, 2010
Hi Sebekhoteph,

As Gerard said " Be sure the contract is contingent upon an appraisal. ".

Ask the Loan Officer to order appraisals ASAP , once you have selected our Lender. Most sellers want the appraisal contingency to be removed within a specific time period.

If you need comps in San Jose or Santa Clara, it would be my pleasure to assist you free without any obligations. Just email me at subchacko@gmail.com
Web Reference: http://bestcaloans.com
0 votes Thank Flag Link Fri Feb 26, 2010
Sebekhoteph:

This is becoming increasingly common - here is a blog post that deals with that specific issue:

Missed It By THAT Much: Top Four Solutions To Low Appraisals
http://bit.ly/cuRmfY
.
0 votes Thank Flag Link Fri Feb 26, 2010
Hello Sebekhoteph,

Many factors can affect home value, but bottom line is that home value is often determined by how much buyers are willing to pay for comparable properties in your area. It is possible for the value of the home to come in lower than your bid price and is often the case when a home is over-priced by the seller. In that scenario most contracts allow for two options: 1) Either the seller can lower the price to the appraised value and both parties can proceed with the transaction or 2) The Buyer can terminate the contract in the event the seller will not lower the price.

Hope this helps!
0 votes Thank Flag Link Fri Feb 26, 2010
Be sure the contract is contingent upon an appraisal.

If the value comes in lower then the sales price - ask the seller to reduce the purchase price to the appraised value. If they won't - you can release from the contract and get your deposit back.

Most important - find a competent Realtor in your area to guide you through the process!

Good Luck!

Gerard Dunn
0 votes Thank Flag Link Fri Feb 26, 2010
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