In some parts of the nation, it seems that you are back in 2005 when house were selling in minutes if not seconds. And no more how much the offer was over the price and it was financing, there was no problem with appraisals.Fast forward to 2009, here we are in similar market. Not only REO inventory is down but the inventory in general. Demand is high causing multiple offer situation in most properties. Nonetheless, we have strict appraisal rules and banks being conservatives in lending their money. Owner occupied buyers who are financing the purchase are competing with inverstors who are buying in cash.Owner occupied buyers are offering sometimes 50% to 100% over the listing price while investors although are offer sometimes more than the listing price are not going that high. Appraisals have been an issue as most of the owner occupied financing are not appraising at the contrac price causing delay in closing and losing an opportunity to sell cash buyers who were put an offer but lost the bid. As a listing agent, how are you making sure that the highest offer if financing will go through with no problem with appraisal?
As an REO Listing Specialist, we simply send over the appraisal to the Asset Manager and advise them that due to the Buyer's financing, the appraised value is their highest and best offer. So far, we've not had a problem convincing the Bank it's in their best interest to accept this and proceed with the transaction. It always helps when the original offer was well-written and had few Seller concessions.
We have had too many agents tell us that they wrote the highest offer just to get it accepted knowing that it would not appraise and they could request a price reduction. We're just tired of this type of game playing. It's not fair to the more reasonable offers that should have been accepted and we are advising our Sellers that it will not appraise for that purchase price. Not that that always works...... If they take the highest and it doesn't appraise - the appraisal might be more then the next highest offer.... Depending on the property and the % over - we have requested that agents have their Buyers sign an addendum stating that they are aware the property may not appraise at the purchase price, that they are willing to make up the difference in cash and that they will not request a price reduction from the Seller and that the deposit will be forfeited to the Seller if the escrow does not close. We've had a few offers pull back and re-write a more reasonable offer and a few that have signed this addendum AND paid the difference in cash. It at least makes them think about their offer and the consequences.
For what I see here, companies are moving towards having the appraisals done during inspections and waived after it inspection period is over. It twice with one the properties I listed, the highest bidder came back requesting a price reduction. Both the buyers had seen and were aware of the property condition and being sold as is. The first cancelled. Second the lender wound up reducing it.
Marcelo. I think we'll see more banks using language to force over-priced offers to eat the difference if an appraisal comes in low. One of my clients has already rolled it out. The result on the first listing we tried - the highest offer rescinded. They were 12% over list. The next highest offer accepted despite being 6% over list and quite possibly having a small appraisal gap. Inventory is so low here that it still made sense to the winning Buyer. The lender also included tight language regarding a 10-day appraisal contingency - very tight given new appraisal guidelines, but a good concept and a good working model for all of our listings.
On my last multi-offer deal I told all the agents to give their "Highest and Best" offer that their clients would be willing to pay, even if the appraisal came up short. That the bank would keep their earnest money if they walked due to the appraisal. But so far we have not had a house appraise for less then the offer price so that has not been a problem. The biggest problem I've had this year has been sloppy lenders (and agents) not doing their work until the very last minute, often causing a delay in the closing.
Some buyers who used financing have offered to pay the difference between appraised value and purchase price themselves. It is not a strategy I would advise but some are intent on getting a particular house even if it comes out of their own pocket.
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