So how do you explain to a buyer, they need to write their offer higher than the home is worth?

Asked by Pearl Ahlquist-Ruby, Fair Oaks, CA Tue May 28, 2013

So with the market the way it is, how do you tell a buyer that if they don't write their offer for more that the asking price and pay the difference between market value and appraised value?

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Laura Coffey, Agent, Santa Clarita, CA
Tue May 28, 2013
I agree with the fact sometimes a buyer has to learn for themselves they will loose out if they do not go hire. If they want to consistently low-ball offers in this market I usually will let them go.
I am very direct honest. I run the comps and tell them,
"I think the appraisal value is around here_______ but I can see a buyer paying around here _________. A house is worth what someone is willing to pay for it. There are buyers out there willing to remove appraisal contingency or agree to pay over $10K, $20K, and ? over appraised value. I will write the offer for whatever you want but if you want my advice on what you should offer to get the house I would offer_______. If the seller wants more than that I would walk. You have to understand that there is buyers out there that have already lost out on a house or two really to offer more because they are tired of loosing out. If you are not comfortable with that then write what you feel comfortable with. I am a firm believer that everything happens for a reason. Either this is your house or it's not. Bottom line offer without regrets. Put your best foot forward now because you might not get a second chance. You don't want to say I would have paid $5K more. But you do want to say if someone is willing to pay even $1 more than you, they can have"
So what price am I writing this for? Your choice!"
3 votes
Walter 'Skip'…, Agent, Brea, CA
Tue May 28, 2013
I start by asking the buyer "What's worst, not getting the property or paying more than the comps will support? Their answer will determine which direction to go in.
Good luck,
1 vote
John Souerbry, Agent, Fairfield, CA
Tue May 28, 2013
First, I'd explain to the buyer that the listing price seldom represents a home's worth or market value, especially in a market that is changing rapidly up or down. The listing price could be set artificially high to create an expectation that the property is worth more than comparable homes and push offers up. It could be set artificially low to generate more offers and create a bidding war that eventually drives the price higher than it would if there were only a few offers.
I'd tell the buyer that the ONLY true indicator of market value is what people are willing to pay for it. I'd tell them to forget the listing price - it doesn't matter. If price is the biggest factor in winning the property, then the true value of the property is whatever a buyer is willing to pay. If they aren't prepared to engage in a price war, they need to look at properties that have weaker demand.
1 vote
Bruce Slaton, , Elk Grove, CA
Tue May 28, 2013
I wouldn't. If you belong to Shannon Jones legal updates you will see several recent cases where Listing Agents have insisted on removal of appraisal contingencies or writing offers without appraisal contingencies and the reality that courts will find in the Buyers case most likely. As a listing agent knowing this is the legal trend and if I advised my client to do this and later on they lost in court, who do you think they will be looking at for bad advise, in reality agents suggesting this approach to their clients should also be suggesting they seek the advice of an attorney or they could be left holding the bag later.

On the Buyer side I run comps and advise clients on what I feel the house will appraise for and have them sign the bottom and keep a copy for my records. Then I ask them "if this property does not appraise for $xx, how much more than that would you be willing to pay?"...then on the purchase agreement in the additional info area I put something along the lines of "If property does not appraise for offer price, Buyer is willing to pay up to $5K between the appraisal price and offer price"....

The other approach I take with Buyers these days is when they are looking for a home in a specific area, let's say Wilton. I set them up in the MLS for active properties BUT I also set them up on a 2nd auto search for SOLD properties in that same search criteria because now they know what a house was listed for and what it eventually sold for (to see how much its been overbid on average) and also I can see what the financing was. I can also show there were no credits back to closing costs etc...Also this shows them let's say if they were capped at $375K, what exactly sold for under that price in the last 6 months and in some cases the Buyer decides to look elsewhere because they see what they were looking for exactly was really selling for $600K and so why waste my time for something they will never see in their price range....has saved alot of wasted time.

Hope that helps some

Bruce Slaton
Realty World eCurb REALTORS
Lic # 01305148
1 vote
Good advice Bruce. It's the nuance of how to approach the same issue. I would never suggest that they remove the contingency. Your wording is correct.
Flag Tue May 28, 2013
Sue Archer R…, Agent, Palm Harbor, FL
Tue May 28, 2013
Sometimes, its a matter of the buyer experiencing the market before they realize that the advice given by their realtor is reality.

If trust is not established then they sometimes suspect that you're just trying for a higher commission. (let me see, $5,000 extra in a sales price equates to $125 before broker splits...not enough to sweat over).

It's a very difficult market to determine what a winning offer would be in this market. Market comparables are slow to reflect the current market as prices are increasing rapidly. So how do you tell them? you just do, or otherwise they'll see it for themselves after they've lost out on a few homes that they offer on.
1 vote
Chad Gray, Agent, Fort Lauderdale, FL
Wed May 29, 2013

This is a great question for the Agent2Agent section!

In my experience, providing clients with comparable sales helps them to better understand the real estate landscape and determine the price to offer for a home.

Best of luck!

Chad Gray PA, Realtor
Luxury Living Fort Lauderdale
(at Coldwell Banker Residential Real Estate)

100% of clients rated our service as "EXCELLENT"!
0 votes
Annette Law…, Agent, Palm Harbor, FL
Wed May 29, 2013
Show them the data.
They may need to lose a few.
Then ask, "Do you want this house?"

One should be cautious regarding whom they alllow to 'state' the worth of a home.
Finally, the homeowners are re-asserting their influnece.
0 votes
Mack McCoy, Agent, Seattle, WA
Wed May 29, 2013
You back away from the POV that the property is only worth the "appraised value."

Simple economics, Pearl: you see a house you know is worth $500,000 and it's listed at $425,000; if you could get it for $475,000 you'd waive your appraisal contingency in a heartbeat.

What you work with is the buyer's ability to close on the transaction. If they "only" have $100,000 cash when they go into contract on that $500,000 property, and the appraisal comes in at $475,000, you're going to have a problem. However, if they have $125,000 cash to put down, then they don't really have to worry about what a third party says, do they?
0 votes
Cindy Davis, Agent, San Diego, CA
Tue May 28, 2013
I don't know if I'd tell them to pay more than appraised value - I have trouble with that one.

In terms of bidding over comps...I would show your buyer the recent comps--showing, on paper, that the sales prices were higher than the list prices.

If the buyer still chooses not to get it...I'd probably focus my efforts elsewhere- sorry to say. None of us works for free. If we have a buyer that chooses not to play the particular game of the season...that doesn't give provide us with a path earning a commission.
0 votes
, ,
Tue May 28, 2013
I've always found the direct approach best. Explain to them that the asking price is a starting point and is likely to garner several offers. A higher offer will have a better chance of getting accepted.

Of course, you could let them learn through experience: writing offers and getting rejected. But this is a waste of your time and theirs. A lot of people ask: well what if they don't like this news and threaten to find another realtor? If they aren't going to get an offer accepted anyway then you're not really losing out on anything are you?

You are their trusted advisor and the professional who lives and breathes real estate and the local market. Own it Pearl!
0 votes
Kim Hamilton, Agent, Yuba City, CA
Tue May 28, 2013
I tell my clients its a must if they want a chance at purchasing the home. Simply put, in my local market, if you don't come in over asking, and write an addendum stating buyer will pay the difference between offer and appraised price, the seller won't even look at your offer. This has been an issue in my area for nearly a year. Our appraisals are still low, but prices are climbing. If your buyer won't pay the difference, someone else will.
0 votes
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