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I put a contract on a property and I'm waiting for the bank's appraisal. My realtor thinks the appraisal may be below the sales price of the house. The house itself has many upgrades including 10 foot raised ceilings, hard wood floor and golf course in the backyard that's why the selling price is higher than comps.
My wife and I like the house and if the appraisal comes back higher than the selling price I have a number that I'm willing to put down but not too much. Is this ok to do?
Don't be too eager to throw your money around.
You may be able to get the seller to reduce to appraisal or at least to contribute a significant portion of any difference.
It is OK to spend your money as you desire. If you really believe that you cannot get a comparable home for comparable money, and you really want this one, you might pony up the difference, and not worry about it.
It is safer, though, if you plan to be there for a while, and not sell in 2 or 3 years.
And, appraisers DO make errors. If the appraiser's opinion is low based on solid input from the agent and your own observations, it may be worthwhile to pay up.
I put a contract on a property and I'm waiting for the bank's appraisal. My realtor thinks the appraisal may be below the sales price of the house. The house itself has many upgrades including 10 foot raised ceilings, hard wood floor and golf course in the backyard that's why the selling price is higher than comps.
My wife and I like the house and if the appraisal comes back higher than the selling price I have a number that I'm willing to put down but not too much. Is this ok to do?
You will be paying the difference yourself if you really want it, otherwise the bank won't lend it to you, and when you say putting money down, it's not part of the down payment. Paying more than it's worth means you are instantly under water with the home, but if you know you will stay for 30 years it won't matter.
You don't have to worry as much of it coming in higher, if it comes in lower the bank won't give you the mortgage most likely. I had a deal that was killed because the appraisal came in so low, they would not lower the price and had a cash offer since in this area we have sharks that are not interested in a property until it goes pending. and if the deal is dead you have wasted the money on the inspection and the appraisal, but you can get your earnest deposit back if the realtor made the loan as part of the contingency deal.
If the RE agent thought it would come in lower you should have offered a lower price for the home.
I put a contract on a property and I'm waiting for the bank's appraisal. My realtor thinks the appraisal may be below the sales price of the house. The house itself has many upgrades including 10 foot raised ceilings, hard wood floor and golf course in the backyard that's why the selling price is higher than comps.
My wife and I like the house and if the appraisal comes back higher than the selling price I have a number that I'm willing to put down but not too much. Is this ok to do?
There are several factors that MIGHT make it OK to pay more than the appraisal. The appraisal is going to be based on homes that have most recently sold, so if the more recently sold homes are in fact in a less desirable part of the neighborhood the appraiser SHOULD factor that into an "location adjustment". If that adjustment is still not enough to get the appraisal up to the price you've agreed to then you need to really need to think long and hard about how likely it will be that when other homes come on the market that are in the good location they will have the kind of upgrades that one you are looking at has had. IF that seems like a good possibility then maybe it makes sense to move forward with this deal. IF NOT then basically the home is OVER IMPROVED for the area and you very likely will NEVER get your money back, but if the house is your "dream home" and you have the kind of job where you will never have to move then it probably does not matter...
Personally speaking it is rarely a good idea to buy a home that is much more costly than its neighbors -- taxes can be higher, if it is also tricked out with lots of high ceilings it is also going to cost more to heat and cool. That said, if you do make enough to pay for these things then my advice is not needed...
We were in this exact situation in the Chicago area in 2014. Believing that the housing prices were set to begin rising again, we found a home that we really liked in the exact area we wanted to be in. The comps in the area weren't great due to lots of flipping going on in the neighborhood--which is primarily 1920's bungalows and mid-century split level starter homes. The appraisal came back $22K lower than the offer price. The seller wouldn't budge much on the price, but we got the difference down to $17K. We decided to overpay and buy.
That is the key word. If you pay over the appraised price, you are overpaying for the house. In the long run, that money will be absorbed by equity growth, but in retrospect, I consider it money we won't truly recover.
Today, I'm on the fence as to whether we made the right call. While most of the surrounding areas are in a strong, growing real estate market, our house is in a little microcosm that is not doing so well. There is still a lot of flipping going on--once that slows down and more homes are improved, this may get better. I love my home and felt it was the right home for me, but I am very aware that we sacrificed nearly $20K that could have been invested elsewhere, and housing prices have been pretty flat.
Thank you for all the inputs. I "trusted" my realtor with the offer price she suggested. I'll wait and see what the appraisal comes out to and make a decision.
Don't forget it isn't all or nothing. Sometimes when the appraisal comes in over, the buyer comes down a bit and the seller comes up with a bit and they meet in the middle.
I'd wait and see what happens before making any decision. If you're only talking $5000 or less, I'd see if you could make it work. But if you are $20k apart, that most likely isn't worth it unless the seller will come down substantially.
Oh, I didn't mention, but your lender should take you through the process of appealing the appraisal if you think it is unfairly low. Your realtor will need to help you identify other comps you feel should have been considered in the appraisal which were not included in the report. We did this, but did not get anywhere with it. Its very difficult to have appraisals adjusted these days.
You will be paying the difference yourself if you really want it, otherwise the bank won't lend it to you, and when you say putting money down, it's not part of the down payment. Paying more than it's worth means you are instantly under water with the home, but if you know you will stay for 30 years it won't matter.
No. When you pay the difference out of your pocket, you are not underwater, because by doing so, you are keeping the LTV ratio at whatever the bank will lend at.
Underwater means it is worth less than the loan balance, not less than the purchase price.
If your realtor thinks the appraisal is going to come back low, and the actual appraisal comes back low, it signifies one glaring, clear point:
You're paying too much.
If the seller will not play ball with a lower price, then move on.
Don't ever fall in love with a property before you own it.
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Things to consider...
