We're seeing a lot of accepted offers way over the listed price on bank owned foreclosure homes in our local markets, too. I haven't seen any low appraisals, although we've been seeing lots of repairs called out. Lisa brings to light an issue I hadn't considered. Thanks for the food for thought, Lisa!
Via
Lisa Udy Realtor Utah Real Estate Specialist (Logan Utah Real Estate Immaculate Homes):
With the amount of offers coming in on REO properties(Bank Owned Properties), there has been a new trend among buyers. The trend is to just offer as high as possible to get the property under contract. After the contract is accepted by the bank, they have to get an appraisal for the loan.
The appraisal comes in quite a bit lower then their original offer price, which means the buyers won't be able to get the financing. These buyers then have the right to withdraw from the contract based on the appraisal contingency. The deal is dead right?
Not so fast. The buyers agent has been planning this all along. The agent and the buyers will submit an addendum to the price to meet the appraisal, and will re-submit to the bank.
Now, the bank wants to get this deal done, and knows the same thing will happen with any other buyer. The appraisal has already been done. So, the bank just accepts the lower price, and the buyers get away with it. They knew the appraisal would not meet the original offering price, and they get a great deal.
With the new appraisal guidelines, this is happening more and more. Appraisals are coming in low, buyers are aware this is what's happening, they are offering high to get the property over the competition, and just wait out the appraisal to get a great deal.
How fair is it to the buyers that put in an offer closer to asking price? Is this fair and balanced? Is it unfair to the other buyers that put in a reasonable offer? Or is it a smart way to get your buyers the house they wanted?
Karen Cooper - OR|CA Mortgage Consultant - www.Quality4Loans.com
Providing high Quality, Professional, Ethical service to Oregon and California home buyers and owners since 1983. Whether you are taking out your first home loan or your fiftieth, for your home, your second home or for investment, put my knowledge and expertise to work for you.
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Karen- Well if you read Lisa's comments, you now know how I feel about this scenario. Professionally, I caution my clients and their Realtors from over-bidding on properties (I even blogged about this). Too often, I have seen how my clients got caught up in these insane bidding wars and ended up over-bidding on the properties only to see the appraisal come in lower than the contract price.
Only once this year have I seen the REO seller bank lower the offer to the appraised value and one other time I had a client and a bank seller meet each other halfway. The other times that this has happened, the REO seller banks have refused to lower the price, my buyers couldn't come up with the difference and the REO seller banks canceled the transactions and BOM the properties. Within days, the properties was back to PENDING.
So, I have no sympathy for REO LA's and their bank sellers who engage in intentionally listing a property too low for the purpose of generating a bidding war to get multiples and then cry foul when the property doesn't appraise. What comes around, goes around and payback is a %!^@#.