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Do you walk or take the money and run?

Do you walk or take the money and run?

As a licensed Realtor®...I'm always concerned about ethics...honesty and guilt. I've been selling Real Estate full time for almost 14 yrs and I've experienced 3 different markets. I've seen the good..the bad and now the ugly. But in the end when a decision has to be made...the final decision is made by your client. Whether it be the seller or the buyer...it's their call. Sure....we can advise them but we really can force them into doing anything and I like it that way. Have you ever heard the story about the Realtor who was being sued by the buyers because they felt they overpaid for a property?

When they underpay...we are worshiped and when they over pay...we are to blame. Presently...any of the active agents out there will tell you that they've recently seen many deals get held up due to appraisal issues. Even if we do the best job comping the home...the appraisers get the last word. They wouldn't jeopardize their license because they are being scrutinized more than ever. That's ok...if I was in the buyers shoes...I wouldn't want to pay more than a property is worth. Remember how we got into this mess in the first place.

But I'm primarily a listing agent and when I present an offer to the seller and the seller accepts the offer...they expect it to close for that price. Unfortunately....it doesn't happen that way all the time...and now it seems to be happening more than ever.

My last two listings that went under contract had appraisals that fell short. That's two in a row.There isn't much I could do to argue the sellers case...the appraiser uses their own comps and they really try to stay clear of our opinions nowadays. Most likely there's not much we can do...if the seller has their own independent appraisal done and it comes in at the value they expect...it still doesn't matter because the banks won't use those to support an appraisal for a buyer.

Thankfully after spending another week of tireless renegotiation....we were all able to work it out and one just closed and the other is on it's way to the table in the next few weeks.

So my question is....when the seller is in this particular position and they come to you...do you tell them to walk or to take the money and run? I hate when they put me in that position so all I can do is give them my opinion. Most agents will tell them that if they cancel the contract and try to resell it ...it might come in even lower. In my market that probably holds true. Some sellers might use the old saying.."I'll wait and try to get more when the market picks up. Picks up? I wish I knew when that was going to be but it doesn't seem like it will be anytime soon.

I think the most important thing for us as professionals to understand is we have liabilities. In the back of our minds we know what the seller should do. But we really should stray from persuade them to do what we think is best. Unfortunately...if they make the wrong choice ....it could bite them in the butt.

I've been in this situation before. The way I try to help them is by bringing them the numbers again. I might sit down and explain to them what might happen but without forcing them into a choice. Thankfully after the transaction closes...they'll come back to me and thank me. They'll check and see that although they struggled with their choice...the value went down even more later on.

Making that decision can be stressful and takes a lot of thought.

For more information please contact Neal The Real Deal Bloom-Realtor® /Keller Williams Properties

1625 N. Commerce Parkway,Suite 105

Weston FL 33326

(954)608-5556

Posted by Neal Bloom-Realtor ® Assoc.-CRS-Weston FL on 06/22/2009 08:41 AM

Comments (57)

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money, run, appraisals, appraisers, banks, realtors

Originally posted at: Weston Florida Real Estate Blog, Neal"The Real Deal"Bloom : Do you walk or take the money and run?

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57 Comments on Do you walk or take the money and run?

JUN

Neal, The Good, The Bad, and The Ugly sounds like a Clint Eastwood movie :) :)

Appraisal issues are causing a number of problems right now, but no matter what the decision to go forward or not is the Seller and Buyers decision. All the rest of us can do is give them all the information that they will need to make a decision.

George,

I've seen it more now than ever.

Appraisals are the big unknown factor in my area. We wait for them with fingers crossed and breath held---sometimes they propel the sale forward and other times when the gap is too wide to ignore the buyers walk.

Norma,

I always hope it doesn't come to that...my last set of renegotiation's took many days but we ended up coming to an agreement. There were closing costs involved so it made it harder.

If they wait for the market to pick up in Michigan they may be dead before it returns

This is a monkey that has to be on the client's back. Are you assuming an improved appraisal on the next buyer? Are you assuming the next buyer will come in the next month or two? Are you assuming that the price and terms are going to be the same prior to the appraisal of this purchase?

I have been doing this too long to know that the odds of finding a similar offer than one that is thrown out the window is very, very small. I had an offer on a $900k home for $820k and the seller let it go because of the terms. The house is now worth about $750k at best.

Is light you are seeing at the end of the tunnel the end of the tunnel or the lights of a freight train?

Just a few question to ponder..........

Russ,

That could defiantly be a confident call.

Tim,

It's just an everyday occurrence and in my opinion...either the seller really isn't really serious about selling but it's still their choice and we have to live with it at time.

Neal, that is a tough one. We have had three in the past two months as the buyer's agents fall short at appraisal. Two worked out in the end, one decided to stand firm.

Who's the partner in the photo? How are you enjoying KW Neal? I've only ever had one house that didn't appraise out in 20years.......I can only imagine how frustrating that might be for you!

Great post.

Very honest and forthright, yet refreshingly inspiring.
We all need to focus on these things as well as stick together.
As they say, this too shall pass!

Thanks for sharing your thoughts!

Tamar

The appraisal system is flawed in my opinion. In Las Vegas we've seen (with the new appraisal rules) appraisers coming in from out of state who know nothing about the market they're appraising in. How can they possibly know that golf course in the west gate at Red Rock County Club has a higher premium than the east gate, and so on...

Problem is they don't know, they don't care and they're looking for the LOWEST comp they can find (even though it was an outdated, vandalized, foreclosure home.

I get it. They're scared. They know they're on the hook if they over estimate and no one is threatening their licenses for under estimating. What do you expect is going to happen? But based on their actions and the logic they're following, they'll never appraise one home higher than the last LOWEST sale which means the market should never go up. (unless buyers are willing and able to come up with the difference)

I believe an appraisal should be an estimated value range, not a specific number or the lenders need to wise up and allow a plus or minus of 5% for the human factor.

Neal, It really depends upon the market and the seller's circumstances in terms of what I recommend. First of all, I provide comps to the appraisers, so that the best ones don't get missed. If the appraisal doesn't come out right, I try to find out what comps were used. If they could have used other comps that would have resulted in a higher appraisal then one option is for the buyer to go to a different lender who will have another appraisal done. If there are pending sales that would result in a higher appraisal, then it might make sense to let this buyer go and wait for the next buyer, assuming the seller has the luxury of waiting for another buyer, they may have financial or time pressure that preclude this.

Neal - those are always tough questions, and without easy answers. It depends on the situation, to some extent, but it really has to be up to the client. And since we don't know where the market is headed for sure, it's hard to advise someone on waiting to see if things get better.

We are seeing more issues with appraisals here, especially with the number of distress sales in certain areas, plus the costs are going up significantly. Almost $500 now.

Jeff

JUN

No matter what....we don't talk for our clients...we speak what they spoke. And yes, unfortunately it might not be the best choice for them but all we can do is give them info and let them decide. :) Happy Father's Day Neal!

Neal,

I agree with most of the posts above. We all know that the only and final decision belongs to our client. I think your question was more about "what to tell the clients". I have only been in real estate for 7+ years, but my advice would be to try to negotiate with the buyer and reach an agreement. I believe in the saying that "the first offer is the best offer". Once a buyer crosses the threshold and makes a decision to buy a property, then the seller should work hard on NOT letting the buyer walk away. I have never seen an existing home (as opposed to new construction) to go UP in value over the duration of a listing or from an expired listing to another new listing. Time is working against the seller. My advice to the seller will be DO ALL that is necessary to sell the house to this buyer.

Re-post:

Neal,

I have been pricing the listings so aggressively "best priced of the bunch" in our totally slowed down market, that I haven't been hit with an appraisal issue "yet". But I know it will come one of these days, especially since we are seeing appraisers from over 30 miles away (that's a long ways in the Seattle area, like sometimes an hour and a half commute) in our local neighborhoods.

I always prepare my sellers for the possibility of a short appraisal and we talk about several scenarios before it happens. When it finally does, it won't be a surprise, just a glitch that we work through. Getting ahead of the game.

Scarier problem is BPOs coming in 265k on a 240k home with a 235k offer. And the first, second and third are owed 305k. Problem is that 6 months ago was listed at 265k and had 0 (as in zero) showings in 2 weeks. Buyers, sellers and both agents don't have a clue how to solve that one.

List and Sell (list ahead of the market decline) Gary @ RentonHomeFinder.com

Good Morning all,

I'd like to touch on a few things....I've been the shoes of those who have had appraisers come into an area that they might not know where to comp a home. I've also been in situations where I wasn't sure if it would be cutting it close. I had one situation where we were actually able to call for another opinion and it was reversed but that's probably a rarity then and now. 7 yrs ago we were told to leave them alone and let them do their job. Now all we can do is ask if they need additional comps. Sellers have the hard decision...do they walk because of the emotional decision of whether they could get more if they wait or do they take the new price and not regret it later.

I think there will always be some sort of contreversy. My question is that if we are relied apon to price it right and then they come in and have a different result...then maybe the system is in need to be altered or changed.

Appraisals are also a big issue with properties selling short..REO's and foreclosures...they've become the competition and the lenders aren't even looking at the difference...it's whatever they dictate it to be.

Neal...

I think there's agents out there who would say anything to get paid right now. Lucky for us, we aren't one of them. I don't like being responsible for someone else's decision either. Our best foot forward is to leave the decisions to the customers. Summarize their options and let them know it's THEIR decision. When we start force feeding a customer we have stepped way out of bounds. Can we say foul play? :)

TLW...ROAR!

Neal - We have had a handful of appraisal issues here as well. Thankfully, most of them were resolved pretty quickly, but not all of them. We are now dealing with a tough one with a Countrywide short sale (since NOVEMBER) - the appraisal came in slightly too HIGH for them to work it out last month. I never would have imagined this scenario a few years ago.

Neal--I agree with you 100% that there is not much you can do...appraisers need to be left alone to do their jobs. The decisions lie with the clients. If they can live with the amount, then take it. If they can't, then don't take it. But the comps are the comps and underwriters are scrutinizing comps very carefully now. You are a good agent that knows it is not about the money in your pocket, but what the number that will work for your client. Hard to advise as there is no easy answer in this market.

My job is to make sure the seller or buyer have all the information they need to make a decision they are comfortable with. I have nothing wrong with how you handle it.

Billie,

I don't like to be in that position. As you said...and I said....we can only advise them to the best of our ability.

Jason,

That's a big issue right now...lenders arguing with lenders..short sales being appraised for more than the buyers lender will come in with which only makes matter worse for us.

Teri,

When you add in closing costs and the price has to be jacked up...how they make a reasonable assumption? It only adds more problems and confusion and the seller is the one who gets hurt more than the buyer...the buyer doesn't and shouldn't have to pay more than it's worth but when you add in money back to the buyer from the seller ...the seller still pays on the gross which makes no sense to me.

Where to draw the line with a client is a moveable feast. I wish there was a tried and true guideline. For real estate, this is the age of uncertainty. I think it requires more proactivity from us that ever.

Brien,

That's really all you can do.

Joe,

Emotions play a big part in their decisions.

Neal - what ever happened to the subject property being the bet comp? We have one now that came in $3k short and the comps are pathetic. The short sale lender won't accept the lower value - Buyer of course has no recourse as it is a short sale. Will the Buyer go up? No time to rework the comps as it is set to sell at foreclosure. This pendulum has swung to where the appraisers are hurting the lenders in the other direction - they're still getting hurt.

I've been writing a BLOG on Wordpress since 9/2007. Out of the 90 or so articles I've written the #1 and #2 read posts are "What's the difference between Appraised Value and Assessed Value" and "What do I do if my house doesn't appraise for the sale price?"

The comparative stats are staggering, imo. Those two articles have been read by the public more than 4000 times in the last 12 months. The first one has been read 2700 times and the second one a little more than 1400. The next highest post has 500 hits and then they go down from there.

Something tells me (now this is just a gut feeling) that the 4000 people who searched on this subject and found my articles are doing so in the midst of a transaction that isn't going well.

Remember, that this is just data from my one, humble, underpubliczed, improperly optimized BLOG. I'd have to venture that the number of people looking for this information goes well beyond those that end up on my page.

So this issue is not new. It is not about HVCC. It is not something that should ever come as a surprise to a seller.

We certainly cannot tell the seller what to do, but we can advise them at the time of the listing of the possibility that this could happen and give them their options. If they know the information and options and have a contingency plan early in the game - long before they get an offer - they will be able to make an informed, rational decision instead of making a decision in an emotional panic.

Having said that - they still aren't going to like it and some of them will still blame us. :)

Neal - As a mortgage gal, I've seen this for awhile and it is truly a crap shoot as to what the sellers will do. I have seen just as many walk as I have lower their price. What I rarely see are buyers coming in with more.

I haven't done a conventional loan all year, only FHA, and the appraisers I use are local guys who are well aware of our specific market conditions and are also very good at doing their jobs (meaning I don't tell them how to do their jobs).

This year, I have only had two appraisals that didn't come in at value and in one case, my buyers Realtor was able to provide additional info that the appraiser wasn't aware of and in that particular case the sellers agreed to come down to the appraised value (4k<).

The other case the buyers walked because the seller refused to come down to the appraised value (19<). The buyers were aware that this might happen becaue their Realtor told them during the offer stage that the price the buyers wanted to offer was more than the home would probably appraise for based on recent comps. But the buyers loved the home and were tired of losing out on every home they made an offer on. But in the end, they chose not to pay more than the home was worth.

You win some, you lose some. In the end, we have to do what is best for our clients and every client will be different so there is no right or wrong answer here.

Neal... you don't know when the market will pick up, when the seller says that they will wait for this to happen?.... what happened to your crystal ball... lol

Seriously, there isn't much that I could add, because you make some very good points. This post is good for educating both the seller, the buyer, and the realtor. It is tough out there right now, and yes, appraisers are being careful also. And on top of that, you have specific lender overlays and such. Good job here.

jeff belonger

I think all you can do is show them the numbers. I tell people I am not good at predicting the future and that if I was I would have bought Microsoft years ago. I feel bad for some people I helped buy homes last year. This year I feel good about the homes I have helped people buy, I think they got bargains.

Document what you tell and show people. I like sending them comps via e-mail and asking them questions via e-mail. It builds documentation.

Hi Neal, Good post. Thanks for sharing.

Best - Sash

Neal, I have had several sellers ask if they should have an appraisal done to support their desired price, and I now tell them that it does nothing for their case, because it's the buyer's lender's appraisal that is the gospel word. And, dealing in historic homes, one never knows how much the appraiser knows. I had a call last week from an appraiser in MD asking if a property being on the historic register adds to the value. First of all, he should have called a local Realtor, but his inexperience was evident because I don't think he had been in the business long enough to even know which local Realtors deal in historic homes. Second of all, it's scary to think that he would add value to a home on the word of someone he found on the internet (me).

I do NOT envy listing agents in this market nor have I for the past 3-4 years.

You walk a fine line between comps and the sellers lack of understanding of our market, especially with declining values.

My job is a lot easier in many ways. Study the comps and get the house for the best price we can negotiate.

We commonly have appraisal issues - in ANY market - because our area has many nonconforming areas and property types; 50 acre horse ranches with a 1200 SF home; 30k singlewide beaters next door to a 350k custom home, etc. (Hey, it's the River . . . hahaha)

And appraisers differ in opinion on the value of river/lake frontage or a private marina. Yada yada.

If the house doesn't appraise, the seller has choices:

Take money/run.
Hold fast and lose deal.
Split the difference if possible.
Seller can carry a note on the difference, if doable.
Seller/buyer split cost of a second appraisal, if doable
Challenge the appraisal if there are enough errors on the report . . . (shocking isn't it?) :)

No matter what, though, Seller gets to make that choice, based on all the other info. I am not influencing that decision aside from making that info available.

I think the listing agreement signing is the time to address all of these issues . . . get the seller prepared for these possible snafus so it doesn't become a huge drama when/if it happens . . .

Great illustration of a dilemma. I never make a decision for a seller, nor provide an answer that they could over rely on. I always ask them: What would you like to do? The decision is always theirs, never mine. I simply point out the pros and cons to each option.

In this market the appraisals rule and the banks/mortgage companies are holding all the cards. All we can do is continue to give advice to our clients.

Jim,

Appraisers aren't going to use the subject property...they generally take 2-3 good closed sales within 6 months or less and maybe one pending sale..I tihkn they are looking for a break even point.

Rick,

When the property is listed...I'll tell them up front that chances are the value will be worth less by the time there is a contract. So if they start too high ....they might ever catch up.

Donne,

Would you believe one of the properties was my first FHA loan that closed on any listing I ever had? It's true and it took almost 14 yrs to do it....we never saw many FHA loans during my tenure but the last one closed on time...it just appraised for 12K less than the seller expected and this seller was a relative who still can't believe it...but I warned her at first.

Jeff,

It's even worse when a buyer comes in with little or no money down...IE FHA...so there is virtually no way for them to say they'll bring the difference to closing. In almost 14 yrs...one of them that just closed was the first FHA loan on a listing I had that closed.

Gene,

Luckily most of mine were listings and even the buyers came in with some equity on them.I checked to see if any of them are foreclosed...I haven't seen any. I guess if they refinanced and cashed equity out then they might have a problem.

Carolyn,

I know of no bank that would use a sellers independent appraisal.

Lenn,

As the buyers agent...all you can do is pull comps that fit the buyers criteria...then show those numbers and base that on what they should offer. This way they know the last few sales...but it could still might not appraise later. But yes...it's worse on the seller than on the buyer.

I'm trying to answer each person individually if I can so if I missed you...I apologize.

There are many situations when as agents we are put in a tough position. You've just got to stick to that inner voice, give them your knowledge and let the decision be solely their own.

Candice,

That's how I look at it..I'm limited to how much I'll say other then giving them the facts I can find. It makes no sense to argue because you can't win no matter the case.

Neal -- Great post! I've had several low appraisals come in and it is such a challenge to all the parties involved, especially when the seller was already upside down. Usually we try to get the buyer to split the difference and in those cases, it has been a win-win for everyone.

Neal I hear you. Like most we are experiencing the same issues. As for the sellers it really depends on their situation. Do they have to move? Is there a job transfer? Did they purchase another home? It's my job to give them as many facts as possible and let them make the decision. My job is to manage the process, their job is to make this decision.

Not only are the appraisals difficult but the underwriters are scrutinizing everything......and then going back over and doing it again. We've been able to pull them all togeher for our sellers and buyers and I pray that continues.

Congrats on the feature......excellent post and great conversation.

Kerry,

You can only try to split the difference if there is a sufficient amount of money down....if it's a loan where the buyer is asking for closing costs because they don't have enough then it's hard to believe they can find money but I've seen it before...and on my next deal it was negotiated that way..interesting where you can find money. Holding money back or finding it i just part of the art of negotiating.

Anna Banana:),

The ones that walk are generally the ones just looking to see what it is valued at but they never end up selling when they find out the numbers aren't what they expected...they just take it off the market.

I'm glad this blog turned out to be one of my better discussions.

Keep them coming!

When appraisals come in low, it is definitely a sticky situation. The buyer will not pay over the appraised value and the seller can't believe the value of their house is so low! I don't believe in my market that buyer and seller will split the difference. I had a situation similar to this a little while ago. Sometimes it is difficult for the seller to accept this, and our job is to give them the facts, show comps and let them make an educated decision. Great Post!

Neal, you've brought up a serious concern. If we can get a buyer and seller together nowadays, our job sometimes is just beginning. Giving the sellers ALL the facts allo along the way and then letting them make the decision is always best.

I used to worry about getting through an inspection without too much hassle, now we've added the tension of waiting on the appraisal and a few times it's come in under the selling price. I present all the facts to my clients, we do our due diligence and renegotiate things with all parties and so far in the end it's been a win-win for all parties and we've made it to the closing table.

Neal,

Appraisals are real butt-biters now! Hopefully, if it's listed near the bottom of the price range, we can get it to the settlement table without loosing our reputations/patiences!

Aleksandra,

There is only one way to avoid all of that and that is to sell it to a cash buyer but even then they are entitled to get it appraised. Some buyers won't pay for it but some will just so they see what the real value might be.

Sandy,

I never take a home off the market until both those items are crossed off my to do list.

Kathy,

Owners don't want to hear that they are listed at the bottom especially when most can barely break even without having to come to closing with money so they avoid the short sale.

Over valued appraisals got us into this mess. Undervalued appraisals are now the problem. They are really only an opinion of value based on what the end user wants. Just hope that the government doesn't want to get involved in the appraisal business.

Neal, How I counsel them depends on what the seller is trying to acheive. If the seller has to move then I strongly suggest they take to the deal and move on. The appraisal is not going to change and in all likelyhood their property will be worth less in 60 days than it is now. I back up my suggestion with statistics. I have been very forceful with my sellers and after all was said and done they thanked me for it. Seller's emotional attachment to the property can cause them to make bad decisions. My job is to make sure they don't. I actually explain this to them at time of lsiting.

Neal, Good job. I agree, it is our job to present the facts and let the Seller choose.

LOl at Russ's comment about Michigan.

I would say give them the facts and let them decide but in MI best to take what you can get. There is no end insight with the Automotive industry driving or having driven our economy.

Neil,

Great post!

I can imagine how the appraisal can make or break a deal in most parts of the country.

Fortunatey we can feel blessed that in Hawaii we still have cash or large downpayment buyers, because properties here are so hard to comp, with features such as view & cross wind factor affecting the desirability factor (and Value) of a property.

Aloha & keep up the good work!

Monique

Neal, I think giving the clients the numbers and advising them as to current market conditions and then allowing them to make the final decision is all we can do.

JUN

Neal,

Especially in the markets like yours in Florida and ours here in Las Vegas appraisals are a tough nut to crack. Prices have been all over the place, mostly in the gutter, so it's a challenge.

JUN

Nice post. Definitely the sellers - or buyers decision. Agree with getting them the best info possible, and pointing out possible consequences of various scenarios -- then up to them. Wanted to add, that I was told that appraisers here are only going back 3 months - they are using those recent sold, 1 pending and 1 active -- not sure how great it is to using a property that hasn't closed, or even had an offer yet, in the apprasial process --and a recent appraisal reported those three categories as the comps. .

JUN

Hi Everyone...I'm sorry but I got busy again....but as you can see we are all in agreement that it's generally the clients call but we can only advise them to the what the values are reported at.

From what I see on appraisal reports here is they generally won't go back more than 90 days unless they have no other alternative and the generally take three closed sales and one pending...I'm not sure if they use an active as a measuring stick but I do think they might try to target averages.

JUL

Neal. The best thing to do is to educate the sellers every step of the way. If your sellers know what is coming next then you will have the best chance to complete the sale and have a satisfied seller.

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