By Jonathan Bodeen · 28 December 2020
In this super-hot market, now the most intense seller’s market we have ever seen, a well-priced home (and sometimes even overpriced ones) will receive multiple offers. When these offers start pouring in, it’s easy to get tempted by the high price points. Of course, we want our clients to make the most money possible, but we also want to consider that the bank will only lend the amount they think that the home is worth. So, if an appraisal comes in low, either the buyer has to come in with more cash, the seller has to reduce the price, or a little bit of both.
What I’ve started doing on our listings, when cycling through offers, is identifying which buyers are willing to either waive their appraisal contingency, or at least agree in advance to pay a certain amount more than whatever the appraisal comes in. By negotiating the potential of a low appraisal in advance, we can remove a great portion of unknowns that typically happen in a real estate deal.
Recently we listed a property for $360,000. I knew we were over the comps in terms of our list price, but the home was nicely upgraded so we decided to shoot for it. We received multiple offers, a few at 370k, and 375k, and one at $390,000! The 390K was tempting, but we knew the house wouldn’t appraise for that much, and the buyers weren’t willing to pre-negotiate appraisal terms. Instead, we got another offer to raise their purchase price to $385,000 and also get them to agree in advance to a minimum price of $375,000.
Sure enough, the appraisal came in at $360,000, our original list price! The buyer’s agent called me to try and weasel her client out of the agreed upon $375k if the appraisal came in low, but we held our ground and we were able set a record for the neighborhood for a home of that size and age.
When we represent a buyer, we would never recommend removing these kinds of protections, but unfortunately buyers, that’s what it sometimes now takes to get the property you want.