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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 could ask for them to commit to covering a certain amount of appraisal deficiency. We'll cover up to $10k if appraisal comes in low, but if it's more than that we still reserve right to try to negotiate down or walk. That kind of thing. Compromise between current appraisal contingency and no appraisal contingency.
That's kind of what I was thinking. We were listed for four days and got three offers, one that was full ask. So I'm certain there would be more if we wanted to wait, but this was full ask with no real contingencies (aside from mortgage and the one in question). We did have a full cash offer but it was lower; I'm willing to take some risk to make more money. I jumped quickly on the full ask offer because I'm worried that interest rates might jump soon which will cool the offers a bit.
In my mind, the mortgage contingency is already an appraisal contingency, but one that has slightly less teeth since the creditworthiness and mortgage product can make up for some of the spread.
My agent is positive that the house will appraise given her most recent sales in the past 3 months so she isn't worried at all. That is comforting because if she was worried she would have pushed back harder on me in my attempts to strike this clause- she wants her money!
If the house doesn't appraise, maybe he can't get the financing. I'd make sure they buyer knows that you will not reduce the price if the house doesn't appraise. Your buyer is probably planning on using the appraisal to renegotiate the price. Make it clear right from the start that isn't going to work
If the buyer is shaky about financing (can't finance if the house does not appraise at the full amount), give him a short drop dead date to get the appraisal done. You don't want to hang out waiting all month before you know whether or not he is actually buying.
OP, if your buyer is pre-approved for the amount, that doesn't mean he will get the mortgage. The bank also considers the house that will secure the mortgage. If the bank doesn't think the house is worth their risk, or maybe the buyer isn't putting enough down to cover their risk, they won't finance your house for that buyer at this time. They consider both the buyer's finances and they consider the value of the house before they will give the mortgage.
I'm going to guess that your buyer doesn't have enough cash to make up the difference in price and mortgage amount if the house doesn't appraise. But your agent is confident the house will appraise, so spin the wheel and take the gamble... or don't. it's up to you.
These “I could get another offer” mentalities of sellers are funny. Is anyone thinking about the leverage you lose with the next highest offer when you come back to them and tell them you’re willing to entertain their offer now? They probably smell blood in the water and know you may be willing to risk losing one buyer, but not two. The leverage pendulum swings entirely back in the buyers’ direction at that point.
Sounds like you already gambled by passing over a cash offer, that you probably wouldn’t have had any appraisal concerns with, for more money. You better ride this one out to the end, now that you’ve rolled the dice, and hope the property appraises out. Otherwise sounds like you’re going to be taking a hit to the pocketbook one way or the other.
To me three offers in four days at or slightly below list is a brisk sellers market but it's far from being a market where you hold all the cards. It's not the 15 over list offers in one day some places are seeing where buyers are foregoing inspection and appraisal contingency to set themselves apart from the crowd.
We bought and sold last summer in similar market (houses getting several offers within a few days at list price). We insisted on an appraisal contingency as buyers, and all our offers had appraisal contingency when selling. The offer we chose offered to cover a certain amount if appraisal came in low.
I guess the question is if you insist on no appraisal contingency and your buyer walks, how confident are you the next offer will waive it? Do the other 2 offers you have right now have an appraisal contingency?
That's kind of what I was thinking. We were listed for four days and got three offers, one that was full ask. So I'm certain there would be more if we wanted to wait, but this was full ask with no real contingencies (aside from mortgage and the one in question). We did have a full cash offer but it was lower; I'm willing to take some risk to make more money. I jumped quickly on the full ask offer because I'm worried that interest rates might jump soon which will cool the offers a bit.
In my mind, the mortgage contingency is already an appraisal contingency, but one that has slightly less teeth since the creditworthiness and mortgage product can make up for some of the spread.
My agent is positive that the house will appraise given her most recent sales in the past 3 months so she isn't worried at all. That is comforting because if she was worried she would have pushed back harder on me in my attempts to strike this clause- she wants her money!
And what's your agent going to do for you if the house doesn't appraise? Housing market has been crazy here for a good year and I'm hearing houses still aren't appraising. I think oregonwoodsmoke gave you good advice. You're in the driver seat. Even if your other two potential buyers have moved on, inventory is low and there will be others. Plenty of others. It sure seems like your buyers are worried about getting their mortgage.
When I was selling my house ten years ago I would have taken a reasonable but lower cash offer IN A HEARTBEAT. Eliminates so many problems. SO MANY.
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