Appraisal Before Contract?
Do people ever get a place appraised before negotiating a price and signing a contract? We have buyers who want to do this and I’ve never heard of it in NYC but times have changed since last time I bought…
Do people ever get a place appraised before negotiating a price and signing a contract? We have buyers who want to do this and I’ve never heard of it in NYC but times have changed since last time I bought…
Hopefully if your prospective buyers arrange an appraisal, they will engage a seasoned professional. I say this because the banks now use (and pay really cheap prices) to the lowest cost provider.
I had an experience recently where the appraiser was doing 5 appraisals a day, and he completely botched it. The comps were laughably different, and the re-finance fell through.
We now have gotten the same bank to start from scratch (yes we paid all the fees again) and the new appraisal by a professional came in 60% higher.
I would encourage you to allow the appraisal, but don’t take it lightly. Stage your place, and have a printed list of its best features ready to give the appraiser in case it helps him. Try to get a sample of another appraisal report and arrange your list in the same order for maximum effect.
You may be pleasantly surprised if they agree to share it with you.
” Appraisal came in low ”
Logic tells me that the statement should read:
” Seller has it priced too high ”
or
” Recent comparable sales and glut of comoparable inventory do not support the contract price ”
or
” Buyer is overpaying due to not fully knowing what values are ”
i’m not sure why they just wouldn’t make the offer / contract subject to financing and appraisal at a certain level. however, i could see how someone would not want their deposit tied up in that risk.
just did a refi of a house very close to the park all new with upgrades, for which i received an appraisal that was lower than a year ago (more depressed market / comps) and which comps included a house in gowanus facing the elevated train tracks and a current market listing requiring a total gut reno (for which the appraiser listed in “above average” condition). Not to mention he missed a half bath in our house and several other “what was he thinking” other details. The only thing missing were juice stains from an italian beef sandwich. Thank goodness his appraisal price didn’t really matter.
So even if they receive a good appraisal on the first one, they could still get the wrong end of a moron appraiser from their bank like we did. That’s the state of the market unfortunately.
It would seem to me that if the buyers have a mortgage contingency in the contract – that they get their deposit back if they fail to obtain a mortgage – then they are financially protected from a too low appraisal.
Perhaps you need to give us more information here. Are you refusing to let the buyers have a mortgage contingency in the contract? Are your buyers trying to protect themselves from offering too much if this is the case? (If I was in that position, I’d walk away, rather than try to have it appraised first. I’d never do a contract without a mortgage contingency if I were planning on getting a mortgage, and even more so (if it were possible to be more so than “never”) in these times of changing mortgage standards.)
It is, I suppose, possible that they can’t qualify for say, and 80% mortgage, and are putting down something like 50%, and are afraid that the bank will OK an appraisal at a higher amount with their 50% downpayment taking the risk, than the bank would appraise the home for if they were making an 80% loan on it.
In which case, what’s the harm of letting them do it, at their expense, of course? They may have good reason to do so, or you could ask them what their reason for doing so is. (I would definitely ask.) If they are just doing so to try to get a low appraisal to get the price down, you are under no obligation to negotiate further with them.
I’d find out this: is any appraisal they do public knowledge about your home, or knowledge your or your real estate agent are obliged to disclose? Find out. If that were the case, I’d say no, unless they have a sensible reason for doing the appraisal that sways you and you think that they are serious about trying to buy your home.
Meezer sums it up. OTOH, why not let the buyer do his or her own appraisal if it is contingent upon them sharing the results with you? That way you get a free appraisal and have an idea of what other appraisers might bring in.
it is useful
The only appraisal that matters in the transaction is the one that is ordered through the bank. HVCC regulations make the days of obtaining your own appraisal and submitting it the lender obsolete. There are a few exceptions to this depending if the lender holds all their loan in their own portfolio or sells only to private investors, not the agencies.
Usually the buyer is protected from a low appraisal by the mortgage contingency clause which will specify the desired financing. If the bank makes a counter offer because of a low appraisal, the buyer can get out of the contract, or put more money down or the seller can negotiate the price.
If the banks appraiser brings in the value too low to make the deal happen, you usually have no recourse. The buyer can contest the appraisal, but I have never seen any meaningful change. The only option then is for the buyer to apply to another lender and hope the new appraiser if familiar with the area and is will to do some work. I have seen huge variations on appraised values from different lenders on the same property.
We have comps and our place is not officially on the market yet but the price is based on comps, broker opinions, and ppsf averages. Our potential buyers are friends of friends and we are offering them an attractive price (lower than comps, broker price points, and less than the highest recent ppsf sales) b/c we just want to get a deal done and would rather not put on the market, etc. But I am still worried about appraisal b/c I keep hearing things about how low they are coming in these days and that appraisers don’t take into account things like location (schools, park block) that buyers do pay for.
Never heard of it. Your real estate broker should be able to provide you with comparables. You can also check real estate website like property shark for comparable. Also, I have never heard of a bank offering a loan greater than the value of a property.