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I've been looking for a home since November 2012. I've seen 7 homes but none I wanted to make an offer on, and finally my dream home came on to the market. We had the first appointment and made the offer the same day: 21K over asking price. This is a foreclosed home. I wait a week and find out I was rejected by the bank, instead they went with a cash buyer who did not have an appraisal contingency. I thought the appraisal contingency was standard? I probably would have had the cash to make up the difference. Even my experienced realtor didn't suggest taking that off, she just said the bank would go with the highest offer. How much should I have offered over asking price? How do I beat out cash buyers? I'm approved for a conventional loan with 20-30% down and have a great credit score and job, so silly me I thought I would be the ideal buyer. Do most people waive the appraisal contingency so the offer is more competitive?
On a REO, the bank will look favorably on a -no inspection contingency. Two offers, one has the contingency, one does not, equal offers, they get it, you don't. How it works.
Highest offer really means best offer, they are not always the same thing. The offer is evaluated in whole, not only offer price.
Beating cash buyers is always tough. If I offer cash and have done my pre-offer inspection the offer will be clean and everyone else has to offer more, quite a bit more if they are getting a loan, need inspection contingencies and all that.
This is why I take my preview inspector with me on REOs. They look around and can tell me if the house is a pass or go for most major things that would come out in a home inspection.
Waiving the inspection contingency isn't wise unless you have a preview inspection (something I do at even the open house or my appointment viewing). While I am walking around, he is looking at things that will cost lots of money to fix. Foundations, under decks, inside the attic, roof etc. This is after all, a REO and it isn't like there is someone home.
So far, not not a single refusal not to let my inspector do a very thorough look around. It is either a go/no-go thing. I can then offer and pull the inspection contingency. If it is a go but I am told there are some things that still could use some close inspection, I can offer but put a 2 day contingency in the offer. Offer is accepted, inspection same day. Done.
Remember though, on REOs, the banks don't fix things so the contingency is just for you to bail out. There are cases where you can negotiate down but not always. It is hit or miss on REOs.
Yes, banks much prefer not to have an appraisal contingency. These days, the prices are going up and appraisals might not be going up as quickly as the offers. In the past, people would bid high to get the house under contract, then take it to the bank and try to lower the price if it didn't appraise. Both good reasons why the bank won't take the appraisal contingency. If your agent feels your offer is at market value, and you have the cash to cover a potential shortfall, then you might have to remove that contingency to get a REO property.
I'm in almost the same situation as you. Trying to buy a house with 20% down conventional.
A strategy I used on my last REO offer (that was accepted within 24hours!) is to give a HomePath financing pre-approval letter with my offer (if you are trying to purchase a Fannie Mae home of course).HomePath financing doesn't requires appraisal so no contigency needed.
(decided to pass on the house event though it was an awesome deal)
Just found an other FNM REO that I'm probably going to submit offer on it. Will try this "strategy" again and see if it will work.(on previous house, agent told me that they like to see HomePath financing with offers ).
Quote:
Originally Posted by Beach and Tree Lover
I was asking about the appraisal contingency not the inspection contingency.
I've been looking for a home since November 2012. I've seen 7 homes but none I wanted to make an offer on, and finally my dream home came on to the market. We had the first appointment and made the offer the same day: 21K over asking price. This is a foreclosed home. I wait a week and find out I was rejected by the bank, instead they went with a cash buyer who did not have an appraisal contingency. I thought the appraisal contingency was standard? I probably would have had the cash to make up the difference. Even my experienced realtor didn't suggest taking that off, she just said the bank would go with the highest offer. How much should I have offered over asking price? How do I beat out cash buyers? I'm approved for a conventional loan with 20-30% down and have a great credit score and job, so silly me I thought I would be the ideal buyer. Do most people waive the appraisal contingency so the offer is more competitive?
Welcome to the club!
Your "experienced realtor" is just another example of not so good realtor.
Your situation is exactly what happening in my area (I am in FL as well) - cash buyers are getting all houses. What is your price range? I noticed there are less cash buyers in $250K+ category.
When you made an offer 21K above asking price, didn't consider how much that house was appraised for by county for property tax purposes? Was your 20-30% down could get you close to possible appraised value? How much difference was between your offer and most houses sold within the same beighborhood recently?
I understand this particular property is an REO, but I wanted to throw this out there for in case you offer on a "regular" sale next time. In the Texas contracts, the appraisal contingency canNOT be removed for FHA or VA loans. Not sure what type of loan you're doing, but the contingency can only be removed if it's a conventional loan. Maybe your contracts have something like that in them as well, and your agent didn't explain that to you because it wasn't an option to remove it? I don't know your whole situation, but just offering one situation of what might have been.
Welcome to the club!
Your "experienced realtor" is just another example of not so good realtor.
Your situation is exactly what happening in my area (I am in FL as well) - cash buyers are getting all houses. What is your price range? I noticed there are less cash buyers in $250K+ category.
When you made an offer 21K above asking price, didn't consider how much that house was appraised for by county for property tax purposes? Was your 20-30% down could get you close to possible appraised value? How much difference was between your offer and most houses sold within the same beighborhood recently?
Again with blaming the REALTOR. Cash offers are almost always accepted over financed offers. Sometimes even if the cash offer is less. Cash offers pledge more earnest money, seldom use appraisals, close quickly and rarely fall out. Financed offers require appraisals, take longer and have a much greater chance of falling out. Sellers know it. It has nothing to do with the agent.
Even if the OP could have offered more, would it be prudent to pay more than the house is worth? I don't think so. As an agent I would have encouraged my client to make the best offer they could under the circumstances. If they get beat out by a better offer it is not anybodies fault. They will eventually find the perfect home.
I've been looking for a home since November 2012. I've seen 7 homes but none I wanted to make an offer on, and finally my dream home came on to the market. We had the first appointment and made the offer the same day: 21K over asking price. This is a foreclosed home. I wait a week and find out I was rejected by the bank, instead they went with a cash buyer who did not have an appraisal contingency. I thought the appraisal contingency was standard? I probably would have had the cash to make up the difference. Even my experienced realtor didn't suggest taking that off, she just said the bank would go with the highest offer. How much should I have offered over asking price? How do I beat out cash buyers? I'm approved for a conventional loan with 20-30% down and have a great credit score and job, so silly me I thought I would be the ideal buyer. Do most people waive the appraisal contingency so the offer is more competitive?
You did not lose because of the appraisal contingency, you lost because it was a cash offer.
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