I had an interesting question from one of my buyer clients yesterday that spawned a great debate around our office. My buyer asked me if he could put a higher price (higher than contract proce) in the minimum appraisal value blank of the FHA clause of our contract. The reason is so that he could move-in his new home with equity.

Our contract has the following clause in the 4th paragraph:

FHA AGREEMENT: The following FHA AGREEMENT is/is not applicable:

"It is expressly agreed that, notwithstanding any other provisions of this contract, the BUYER shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise unless the SELLER has delivered to the BUYER a written statementissued by the Federal Housing Commissioner setting forth the appraised value of the property (excluding costs) at not less than $_______________ which SELLERhereby agrees to deliver to the BUYER promptly after such appraised value statement is made available to the SELLER. The BUYER shall, however, have theprivilege and option of proceeding with the consummation of the contract without regard to the amount of the appraised valuation made by the FederalHousing Commissioner. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and UrbanDevelopment will insure. HUD does not warranty the value or the condition of the property. The BUYER should satisfy himself / herself that the price and thecondition of the property are acceptable."

An example: Buyer finds a home in a decent, well-populated, spec neighborhood. All the properties in this neighborhood are around 1800 square feet and selling around $250,000. We find a house, listed for $240,000 and is advertised by the seller's agent as having "motivated sellers." 3 homes have sold (for around $250K) in the last 2 months. My buyer wants to offer $235,000, with FHA financing, and the minimum appraisal value set at $250,000. I told him that I'd never tried that before.

I consulted 2 appraisers, my broker, and several agents. None of them had tried it or even heard of it. It IS legal, but is it good practice?