We are involved in a situation now where the owner of a San Diego oceanfront property will not accept the lender's appraised value. The buyers are willing to pay the asking price because the home is truly one of a kind--and they have the means to do so.
As for your home, it is the market that will determine whether you will be able to sell a home for more than its appraised value. Best wishes!
In a buyers market, few buyers will be willing to proceed. Many states have standard contracts that define this subject. Almost every state contract will have, at minimum, a mortgage contigency. If the property fails to appraise, the buyers will frequently seek to get out of the contract utilizing whatever "out" will work for them.
In NJ, we are definitely in a buyers market, and few buyers would think about paying more than the appraised value.
Appraisals are for lenders to feel comforable about the projected loan amount. I have never found a lender that will lend money based upon a contract price that was higher than the appraised value. Lenders ALWAYS lend based upon the appraised value. In Arizona the standard contract form has a contingency that states the appraised value must equal at least the agreed upon contract price.
If the sale is for cash.........then the appraisal is not necessary......however, if I were buying the property for cash......I would still want an appraisal to substantiate the selling price.
You need to talk to your lender, because this will need to be outlined in the Third Party Financing Condition addendum.
Yes... you can sell your house for more than it appraises for IF you have a willing buyer who has the cash to make up the difference. In a seller's market, this happened all the time. It still happens once in a while in San Marino and Pasadena, CA. Although, the market is becoming more balanced and this situation is more rare.
Lenders DO lend on homes where appraisal comes in lower. The buyer makes up the difference between the appraised value and the sales price.
Well, not anymore, it they are a publicly held or government insured lender. Remember those days when they were actually advertising, get a loan for 125% of your appraised value? But there are still people out there with cash and there are private investors.
Okay Rusk, because you are a home BUYER and this is your first question, I'm guessing that you are looking for some assurances that you don't get ripped off. If the seller, you and the lender all hired different appraisers, you could get 3 very different values or you could get 3 reports all saying the value is the contract price. Before you buy, look at homes and guess whether you think they are under priced or over priced. Then a month later see if any of them are "under contract". Chances are, if you thought it was over priced, so did everyone else and it will sit on the market for a long time. If you are good at guessing the under priced homes, then you will have nothing to worry about. A Realtor looks at homes everyday and can get a good feel for this as well. Hire a good one and ask their advice. Then before you are ready to make an offer, have the agent pull up comps and "prove" that you are making a reasonable offer for the home.
Here are a few other scenarios other than a seller's market. The house and land is only worth $100,000. But if the buyer can buy the neighbors home and land too, the land would be large enough to build the McMansion he wants. Vacant lots in a less desirable location of that size sell for $300,000. The buyer would be willing to pay higher than the appraised value.
The buyer wants to change the zoning and turn the home into a Bed & Breakfast or coffee house. Until the zoning is changed, the house only appraises for $100,000. If the zoning change is successful, the value of the home would be $500,000.
A buyer finds out that the home he grew up in as a child and always wanted to buy when he grew up went up for sale. But someone already has a contract to buy it. He offers the pending buyer $10,000 above the appraised price to buy out his contract.
Anyway, just some food for thought.
Most purchase agreements have an an appraisal clause which references if the property does not appraise, the buyer does not have to buy at the offer price and the seller does not have to sell at the appraisal price. That leaves the price open to negotiation again.
These are advanced sales techniques so make sure your realtor knows how to do these things...
One of the agents below mis-spoke. She said that lenders won't lend if the appraisal comes in lower than the sale price. She left out the important wording - Lenders will only lend a percentage of the LOWER figure of the appraised value and the sale price. That means a lender WILL lend, they just won't lend AS MUCH as the buyer had hoped for.
Anecdotally, I recall sales where the price was over the appraised value. The first was in contract at $154,000 (This was in 1993 when prices were lower) The appraisal came in at $140,000. The buyers and sellers compromised at $147,000. The buyers simply had to come up with an extra $7,000 in cash. It was worth it to them because the house had a pool, very expensive window coverings, and some other extras that they realized had value to them that exceeded the amount that the appraiser could justify in a "uniform residential appraisal report"
Uniform being the operative word here :: - Sometimes you need to pay more for custom than for "uniform"
The second sale was in a new home subdivision. Builder was selling the exact same model for $135,000. Buyer brought in $2,000 extra cash to buy my clients home because it was move-in ready. He would have had to wait a month to occupy one of the builders houses.
Thousands of HUD Repos famously sold for way over their appraised values. This happened because HUD made an exception in the standard policy just for HUD Repos only. They offered the Repos to buyers for $500 down and agreed to finance the full sales price, regardless of the appraisal. Many HUD Repos sold for as much as 20% more than they were worth because they had such a tiny down payment.
First, what ultimately determines the value of a property is what a seller is willing to sell for and what a buyer is willing and able to pay. Notice there are two parts to the buyer. The buyer might be willing to pay more but are they able? I've known of numerous occasions when buyers brought money to the table because they wanted the house. I would be concerned since most buyers are using a lender and the lender will order an appraisal. Will the buyer be able or willing to bring more money to the table if the house appraises for under purchase price? That is the million dollar question, and honestly I wouldn't count on it. Although, it does happen.
Second, an appraisal is only the opinion of the person writing it and the comps they selected. Is it possible a different appraiser would come in higher or possibly lower than the first appraisal.
Call a Realtor and find out what they believe market value is and show them the appraisal. Not all appraisals are good. Maybe a good Realtor can help you overcome this hurdle.