Disclaimer â€“ I am only making the following comment from what I read without knowing all the details and facts (boxes checked, addendum written, communications among all parties) - The details are what really count which we donâ€™t have. .
I am assuming that you have a loan contingency and an appraisal contingency in place when you signed this contract with your agent (in this case, also the listing agent) advise. I am also going to assume that with the same advice, you have NOT yet removed those two contingencies.
The appraisal contingency, IF (a big IF here) you checked the appropriate boxes, basically says that the purchase agreement is contingent upon the property appraising at NO LESS THAN the specified purchase price, and it allows you to either go ahead and remove the appraisal contingency or cancel the agreement.
So, if I was you, unless you feel the upgrades in this house is worth the additional $100,000, and that you can get loan with the lower appraised value (simple example at $1,000,000 and 80% loan, you would be getting $800,000 loan. You will put $200,000 down. However, with the house appraised at $900,000; youâ€™d get $720,000. You will have to come up with $280,000 down payment in order to purchase); this is a good time to bargain BEFORE you remove the loan and appraisal contingencies.
I disagree with Tman (sorry, Tman); it really does not matter whether you or your agent go in and negotiate for you. The issue is whether you will be ready to walk away from this property if the seller refuses to lower the price â€“ not saying this is going to happen, but you need to mentally prefer for that to be strong in your negotiation. Tell your agent that this is the case, and you canâ€™t and wonâ€™t come up with the additional $100,000. Either the seller agrees or you will walk. (O.K. real negotiation might be a bit different; I will have to know the seller, agent, etc).
In a sense, the agent has more in stake representing both sides, not just because of the double dipping on the commission, but also for not (Again, another assumption here) showing you the proper comps.
They might ask for another appraisal, but it depends on whether the lender will agree with that or not.
The bottom line is; if you have not removed your contingencies, the ball is in your court as to how YOU want to negotiate and you have the full right to do so.
A side question, Omar, did you KNOW the comps before you make the offer on the house knowing fully that this house is priced high due to the upgrades? Did you also convey the idea to the seller/listing agent that you know the price is higher than normal but you love the house so much that you are willing to pay that amount? . I am just curious because I donâ€™t want to make wrong assumption on the situation. The truth in Real Estate is that buying residential property is a much more emotional process. I have people who just absolutely wanted the house because the house fits their needs perfectly for the timeframe they are looking at and they fell in love with the house. This can not be discounted when talking about buying homes.
Sometimes there is more than one right way.
(Same Disclaimer as the earlier post - without seeing the actual paperwork I can only assume certain elements.)
Many folks here have provided great information to be considered. Let me try to "boil it down" and provide a real life similar example that happened in a transaction this week. Repeating the earlier post - as long as you have your loan and appraisal contingency in place you are in a good position. If you have removed those contingencies you are probably in trouble because you can be forced to perform on the sale or be liable for up to 3% liquidated damages (if you initialed that clause).
Having said that, I had a situation similar to yours. I'm a listing agent and one of my listings received 7 offers, most above asking price. I knew the property would NOT appraise for the amount of the offer that the seller accepted against my advice. (Let me add here that I NEVER represent a buyer on any of my listings - it's bad business for both the seller and the buyer)
Not surprisingly, the appraisal came in $50,000 lower than the accepted offer. Together the seller and I reviewed the appraisal and after MUCH discussion, the seller accepted the appraised value as the new sale price. It closed earlier this week and everyone is happy.
Here's something I learned in the process, especially in this credit challenged market. The lender (Bank of America) pulled the loan 5 times in 10 days for further review by 5 different underwriters in 3 different cities even though the buyers had EXCELLENT credit with 20+% down payment. Bank of America only uses in-house appraisers as do many of the large financial institutions and will not use an outside appraiser. The big lenders are now isolating the appraisers and not allowing them to speak with anyone involved in the transaction - Agents or Principals.
Here's the big "WHAT?" - Bank of America, as most lenders, are now reducing the value of comps by 1% per month since their last sale date - because all of southern California is defined as a "declining market". So think about it, if the appraisal was completed 3 weeks ago, the comps he/she used will be reduced by another 1% in the next week. That means a new appraisal of your potential purchase could be reduced further to $980,000.
So, why would you pay anything above the current appraised value?
Make an appointment to meet with the Listing Agent's Broker. Ask to have him/her represent you or to have your representation re-assigned within the Brokerage, and move forward with a reduced sales price. By staying within the brokerage, the original agent will get some of the buyers side commission but will not represent you.
If you use an agent outside of that brokerage, without that broker's written permission and full release, the new outside agent will most likely not be paid as the original agent is the "procuring cause" of you purchasing the property.
Best of luck & talk to the Broker ASAP....
As a buyer's agent, I would take the opportunity to renegotiate the price, but it doesn' t mean the seller MUST take less.
If the buyers still wants the home, isn't willing to walk away from it and the seller won't budge on the price, the buyer must make up the difference in order for the lender to fund the loan.
The appraisal isn't "market value", it helps the bank make a decision about risk on their investment. Otherwise, sellers would ask for more when the appraisal comes in higher than the negotiated price.
"Market Value" is the price that a seller will let go of their home for and a price a buyer is willing to pay.
With your loan contingency and appraisal contingency, you should be able to renegotiate the price to what the property appraised at, also, you will be dealing with a review appraisal from the lender, if you have not signed removal of your contingencies then you can renegotiate, or get out of the contract with no penalties to you, but first you'll have to check with the time periods and provisions of your contract, maybe consult someone other than your agent since she is a dual agent for both of you.
The buying and selling of real estate is not any different than selling a car or boat .. we have a friend that has been selling his car since last September.
He got his information over the phone from a 22 year old agent at the local credit union .. the agent never drove the car, he didn't even realize how the super high miles really effects values and having dents and needing new tires really wasn't on his list of negatives .. plus, our friend liked the Credit Unions price much better than "published comps" because it was the highest - it's called "ego".
It's February, and even though he's lowered the price slightly the car is still "For Sale" - it needs stuff and it's $5,000 overpriced ... he's got a firm grip. Some listing agents can be like the guy at the credit union, they got a whole lot of info but they don't know what to do with it ... they got the listing but they don't know what do with it.
If you've done your homework properly, know the area like a book and you really understand the comps in the area, then I would get the sellers agent out of the way - you don't need an interpreter do you.? .... have the agent make an appointment where you and everyone sits down with the seller and you do you're own negotiating .... he may not like the offer, but you'll find out why .... "somebody" might have told him to use that asking price.
I agree with Patti and don't raise your offer, I would offer less .... "ego" is the most expensive of the human traits, he'll either sit and learn, or he'll sit and burn at the price - then go back in2/3 months and pay even less.
Good luck and happy hunting.
Which concerns me. The fact that the agent you are using is the listing agent, and she/he didn't show you comps and have you put in an offer in the price range of the neighborhood....... hmmmm..... concerns me, to say the least. In today's market upgrades don't hold the "punch" they once did. Comparative previous sales, and the average decline that the area has taken is where we determine our value.
I hope that your contingency wasn't removed before the appraisal. If not, you need to go in there and make the seller see that the best they can hope for is the appraised price, and not a dime more. Perhaps asking the broker to step in is a wise idea. You need to know that someone is going to bat for YOU- and the broker might be able to use a little negotiating power to help out.
I would not suggest in any case "putting in" more money than the appraisal says the home is worth. In fact, I might say that you may want to offer slightly less, since the appraiser does his best to make the home worth "top dollar" so the loan can proceed through!
Good luck, I hope it all works out for you.
The bottom line is you have to decide how much is this house is worth to you? Obviously you don't want to pay more that what it's worth especially that it's 108K difference.
Vicki is absolutely right, the seller is going to have the same problem with another buyer, they have to face reality.
And on another note, if you decide to look for another house, get a buyer's agent that will look after your own interest, because even if you deal with the broker, their fiduciary duty is to the seller since they had an agreement with them first.
Remember, you're not the only buyer this house is not going to appraise for. It is up to your agent to guide you to the right conclusion for you by advising you of all of your options.
The seller should be resonable and if the agent is working with you and the seller he/she should be fair minded enough to work at getting the deal closed at the appraised value.
Best of luck to you.
Kawain Payne, Realtor
If so and the home has appraised for less, the agent should try and get the seller to accept the appraised value as a purchase price. If the seller is set in stone and unwilling to move on the price you have two options:
1.offer to pay cash to make up the diffeence
2. Walk away, in this case you should not loose your deposit.
Best of Luck to You,
Kawain Payne, Realtor
Let's take a look at the situation from your perspective.
You have information telling you that a home you offered $1,098,000 for is valued at only $990,000. If you make up the difference and close at the contracted price, as soon as you close, the home will be worth $108,000 less than you paid for it.
If your deal falls apart, the owner is stuck knowing the home will not appraise for the agreed price for any future offers as well.
As we see it, you are in the drivers seat. Unfortunately, you share an agent with the seller, which makes this more than a little difficult. From our perspective however, you would not be unreasonable telling the agent you will not pay more than the appraised amount. This puts him in the position of negotiating a possible solution. Keep in mind, he/she does not want the deal to fall apart and will do what it takes to make things work out.
We would think at the very least, this would allow you the opportunity to obtain the property at a new price...one that will work within your perameters.
Check your contract and you probably have the appraisal condition.. Also, the agent will be walking a fine line as a dual agent.
He hasnt talked to you about appraisal yet? Im sure he has spoken to his seller and allready have a plan to get the deal done. If there were no offers on the table... you are in the drivers seat... if all else fails.. cancel and start over..
I'm reading that the bank appraised an overpriced listing at a lower price. There are many overpriced listings. This should be a wake up call to the seller that they aren't going to be able to sell at that price even if they find someone willing to pay that much. The banks always "out" them. Renegotiate the price.
I'd love to help forum members build a custom Buyer's Plan ....if you want to take advantage of this incredible buyer's market.....
Why wait a year for prices to drop.....Let's make our own DEAL now!
FREE DO-IT-YOURSELF ONLINE PROPERTY SEARCHES @
With that out of the way, as long as you still have any contingencies remaining, you can re-negotiate with the seller. Your agent may not want to do that because your agent probably looks like a hero in the eyes of your agent's seller bringing in the highest price ever for the neighborhood... Stick to want you want to pay. You are the market until another offer comes in.
If you love the house that much and don't want to walk away, and the seller won't go any lower on price (that's their perogative to do so or not) than you will have to come up with the difference between the appraisal and your offering price.
Should you think about switching agents as was mentioned before, that might not be so easy because of procuring cause and ethics Realtors are bound to. The listing agent, if they showed you the property and since they have already negotiated an accepted offer, could be entitled to the buy side commission and it would be a sticky situation for the new agent who could possibly end up in mediation and have to give any commission earned to the listing agent after all is said and done.
Market price is the price that a buyer is willing to pay and the price the seller is willing to let their home go for. An appraisal is for lender security. Appraisals aren't necessarily "market price".
In today's market ...the seller should be making the concessions...NOT you...
Sometimes a collective breath needs to be taken....it sounds like you need better representation...the red flags are popping up all over the place.
1) Knowing the comps in the area when submitting an offer is Real Estate 101
Is there anything stopping you from securing a new advocate???..
Did you sign a buyer broker agreement??
Are you competing with other offers?
In this market ....tough negotiations are key to getting a good deal...or fair deal.
What is the motivation of the seller??
Having a Realtor not beholden to the seller may enable you to do a little better digging into the motivation the owner has for selling.....MOTIVATION is key in negotiations.
As a local OC real estate agent ....I know this market.
If you decide you need a new direction and focus....I'd be glad to help!
Kurt Steinhebel ** Century 21 Superstars ** Orange County ** California
FREE DO-IT-YOURSELF ONLINE PROPERTY SEARCHES @
If you still have contingencies, it's time for a frank talk with your agent who will talk to the seller about any renegotiation possibilities or canceling the contract. If you've already released contingencies, you can cancel, but you may lose your 3% deposit that's currently in escrow.
You are going to get lots of answers to this question. I would, among lots of other suggestions, ask your agent to let the broker of record represent you. This is not out of the norm, but also not done a lot.
You see the listing belongs to the broker and the agent is acting on their behalf. Since that broker has both sides (represents the buyer and seller) then you could ask your agent for counsel and representation from their "boss" the broker. Your agent should not lose any monies for this redirect, but I think it would make you feel a lot more at ease. Especially after you run all of your questions by the broker.