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I'm a seller, and I'm represented by an agent. She's good, but you can tell she just wants to get the deal done (at any price). I also have a closing attorney but he/she also just wants to move this contract to the finish line. With that said, wanted to get a community view of the following clause in the buyer's contract proposal:
"The contract shall be contingent upon a satisfactory appraisal for the contract purchase price of $[x]. In the event that the appraisal is unsatisfactory and the Seller is unwilling to reduce the purchase price, then the Buyers shall have the option to cancel the contract."
This is a seller's market. This was our highest offer so I don't want to lose them, but I'm confident that we could get another offer of similar price if we let these people go. However, I'm not confident in the appraisal because property values have shot up in the past year or so, and I don't necessarily trust the bank's appraiser.
There is already a mortgage contingency in the contract and these people are pre-approved for about $100k over the home price. To me, this should be their only protection against a low appraisal. Otherwise, it means nothing- if the home appraises for less than their offer but they are able to get financing, they haven't lost anything and therefore I shouldn't have to reduce my price.
I've suggested to the attorney that we strike the clause but wanted to see what others think on that in case they come back pushing for it.
You have to have an appraisal. The buyers mortgage company will require it, unless they are buying for cash.
You have to have an appraisal. The buyers mortgage company will require it, unless they are buying for cash.
That's irrelevant. They don't have to agree to a contingency in the contract that lets the buyer withdraw the offer if the appraisal is low. In hot markets, buyers are generally prepared to waive that contingency with cash on hand to coverage the shortage.
"The contract shall be contingent upon a satisfactory appraisal for the contract purchase price of $[x]. In the event that the appraisal is unsatisfactory and the Seller is unwilling to reduce the purchase price, then the Buyers shall have the option to cancel the contract."
Who on earth wrote that paragraph? What exactly is a “satisfactory appraisal?” Do they mean an appraisal that is equal or greater than the contract price? Or is it an appraisal properly formatted and free of typos? If the former, then it should have been worded that way.
Who on earth wrote that paragraph? What exactly is a “satisfactory appraisal?” Do they mean an appraisal that is equal or greater than the contract price? Or is it an appraisal properly formatted and free of typos? If the former, then it should have been worded that way.
Why if you're questioning the paragraph you selected only a couple of words? In reality, just the signal sentence makes it clear what is being said. The contract shall be contingent upon a satisfactory appraisal for the contract purchase price of $[x].
You have to have an appraisal. The buyers mortgage company will require it, unless they are buying for cash.
Not true. Fannie and freddie can do appraisal waivers on loans with conv financing/20% dn and good credit. I've done several deals like that, and have one under contract that way, now.
I don't like having a contract price tied to an appraisal. Appraisals are opinions of value (estimates at that) and opinions vary. Would they agree to pay more if an appraisal said it was worth more? I agree that a financing contingency should be sufficient.
However, it is entirely reasonable for a purchaser--especially one that is not confident about market values--to ask for such an appraisal contingency. They don't want to pay more than they think it is worth, regardless of whether they could afford to do so. It is also very reasonable for a Seller to reject such a contingency, especially in this market. The choice is yours: accept, reject or come up with a compromise.
I recently sold my house a couple of weeks ago and it's now in escrow. I had 44 offers in 4 days. I didn't take the highest offer because there was no way the house would appraise for that much and I had no evidence the buyer could make up the difference resulting in them not being able to get a loan for that high amount. The lender won't lend money on a house unless it appraises for at least the selling price minus the down payment. Conventional lenders won't give a mortgage for more than the house is worth.
I took a lower offer that was still about 25% over asking price knowing the buyer had the money to make up the difference if the appraisal came in lower. I included a clause in the contract stating the the buyer would make up any difference between the appraised value and what the house is selling for. They agreed and the house is now under contract.
I learned a couple of days ago the appraisal came in pretty much where it needed to be and now everyone is happy. I'm now over the appraisal hurdle and inspection hurdle and the buyer has been approved for the loan. I'm still keeping my fingers crossed nothing goes wrong at this point.
I recently sold my house a couple of weeks ago and it's now in escrow. I had 44 offers in 4 days. I didn't take the highest offer because there was no way the house would appraise for that much and I had no evidence the buyer could make up the difference resulting in them not being able to get a loan for that high amount. The lender won't lend money on a house unless it appraises for at least the selling price minus the down payment. Conventional lenders won't give a mortgage for more than the house is worth.
I took a lower offer that was still about 25% over asking price knowing the buyer had the money to make up the difference if the appraisal came in lower. I included a clause in the contract stating the the buyer would make up any difference between the appraised value and what the house is selling for. They agreed and the house is now under contract.
I learned a couple of days ago the appraisal came in pretty much where it needed to be and now everyone is happy. I'm now over the appraisal hurdle and inspection hurdle and the buyer has been approved for the loan. I'm still keeping my fingers crossed nothing goes wrong at this point.
Wow 44 offers and your lower offer was still 25% over ask! My agent offered me a similar tact when pricing the house- she said "I think it will sell for X but if we price it $50k lower we'll get a bidding war and maybe get more than $50k", sounds like you went that route!
I went the other way- priced it about $5k over what we both thought it would sell for. Fewer offers, but so far two of the three were higher than the price we thought it would sell for, though only one was full ask. The full cash offer was a good 25k below the other two offers though.
Wow 44 offers and your lower offer was still 25% over ask! My agent offered me a similar tact when pricing the house- she said "I think it will sell for X but if we price it $50k lower we'll get a bidding war and maybe get more than $50k", sounds like you went that route!
I went the other way- priced it about $5k over what we both thought it would sell for. Fewer offers, but so far two of the three were higher than the price we thought it would sell for, though only one was full ask. The full cash offer was a good 25k below the other two offers though.
It was pretty crazy. The house was listed at what we thought it was worth, well maybe just slightly lower but the home values here have sky rocketed so quickly and no other comparable house in the immediate area has listed for a while. We expected a bidding war but not like that. There was also a cash offer on my house for full asking price, but the other offers were so much better, I didn't even consider it. I spent a day or 2 sifting through all the offers with my realtor and pulled aside what we thought were the five best considering everything.
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