As unexpected 'Spring-like' weather is penetrating the Midwest, many are wondering, How Do I Avoid A Lender Killing My Deal.
Just this past week, we've had conversations with 3 successful Realtors in the Chicagoland market who have experienced recent transactions coming to an early death due to lender requirements, some of which involve appraisals.
One agent who asked that he not be quoted said, "I had a good contract for my seller on a condominium which was listed for about 15 days and we received an offer over list price, but there were no other sales in the building for that price point. The deal got killed due to the mortgage clause contingency because the unit didn't appraise out per the lender's requirements."
Unfortunately, this is becoming more common in markets where pricing has hit bottom. As a listing agent or a buyer's agent, your responsibility is to represent your client and help them find the home of their dreams. This may or may not result in them paying a slightly higher price than a previously closed unit in the neighborhood or condo building, especially if some pricing strength is starting to develop. Even more unfortunate is that lenders don't see it the same way a buyer sees it. They see risk and they want to avoid risk. Risk is what contributed to their huge mortgage losses they are not fully recovered from.
3 Actions To Avoid Deal Killing:
1) When Possible, Don't Pay More Than The Last Recently Sold Similar Property. This may sound easier than it is, especially if the market is hot or getting hotter where you are, but in markets that are starting to rebound, lenders are gun-shy about their exposure to a property that is now the 'highest' sale in the market. So, stay just beneath that price point of the other highest sale.
2) Avoid A Higher Sales Price By Removing A Seller Credit. Again, depending on the strength of the buyer and the type of financing they are getting, this may be easier said than done. Yet, generally speaking, when a buyer submits a contract requesting a seller concession (no matter what the % amount), that is a direct reduction in net sales prices to the seller. To accomplish this request, the buyer regularly submits a contract with a slightly higher contract price. So, avoid the 'cash' credit all together and submit a slightly lower contract price. Or, consider requesting things of the seller which are not a direct 'cash' credit in the eyes of the lender (and ultimately the appraiser)
3) If You Must Pay A Higher Price, Be Prepared. Any good Realtor will tell you that just because someone has a drivers license, that doesn't make them a good driver. The same can be said of lenders and appraisers. If it is necessary to submit a contract indicating a price higher than any other recently closed transactions, then be prepared. Don't assume the appraiser knows the market as well as you and your buyer/seller do. The appraiser likely hasn't spent the last 60 days seeing 5 to 9 listings a week. Additionally, the appraiser definitely hasn't attended as many open houses and showings in that market as you have. Therefore, take time and print out a good representation of the competing properties and make notes on each listing sheet about the attributes (both better and worse than your property). In this way, you are demonstrating your market awareness as well as contributing the possibility of helping identify suble differences why one property is definitely worth more than another (but it may not be apparent from the MLS listing sheet). Additionally, the lender NEVER sees your property under contract. So, essentially they are clueless to any details about the property. So, be prepared to offer supplemental information directly to the lender as a rebuttal if the appraisal performed truly doesn't represent the current market dynamics.
Yes, in many part of the country, we are not out of the proverbial Housing Morass yet, but there are glimmers of hope shining through. Let's keep that housing sunshine shining by preventing deals from getting killed unnecessarily.
Michael Hobbs, PahRoo Appraisal & Consultancy
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