When You Know A Listing Won't Appraise

By
Real Estate Agent with HomeSmart Realty Group

I wrote two offers for two different buyers on condos that I know won't appraise.  The first offer was for an Orland Park condo that was priced close to what the buyer paid for it in 2009.  The most recent comparable sold for $40,000 less.

Why is it listed so high?

The young owners updated the kitchen and baths beautifully.  This was definitely the nicest unit we had seen in 3 Orland Park condo for sale appraisaldays of searching (this buyer is ready to go).  I know kitchens and baths can cost a lot, but I'm not really sure we're talking $40,000 in this situation.  And try to get an appraiser to agree.

We're waiting for a counter-offer but I don't see this going through at all after speaking to the listing agent.  They already turned down a higher offer and that price might not appraise.  I guess these sellers figured they would get their investment back 100% (and then some) once they decided to sell.  The updates were done 4 years ago, so although they're beautiful and still in style, they're not brand new.

They are going to build a house, but the listing agent said that if they can't get what they want/need, they'll remain in the condo (it is not rentable).  I think they needed a better explanation of value and appraisals.  I cannot see a cash buyer in this price range for a 3rd floor penthouse unit without an elevator.

I've had to explain to my buyer that even if we were able to agree on a price, it will most likely not appraise and they will not come down to appraised value and I know she won't come up to it.  In the meantime, she'll pay for a home inspection and the transaction will most likely not go through.  It won't be easy matching this unit, even though it won't appraise.

My 2nd buyers

I have a young first-time buyer couple.  We've been out a few times looking and they found a beautiful Oak Lawn condo for sale.  They love it!  Unfortunately, they weren't ready to write when we first saw it and we went through a second time with two sets of parents.  As soon as I call the listing agent to tell him there's an offer in his e-mail, he told me that they had just received another offer 10 minutes prior.  However, his seller loved my buyers and me and it was going to be a tough decision for her.  She liked us so much she wouldn't answer the first offer until she heard something back from me!

The other offer is a lower cash offer but she really likes my buyers, and they are financing.  Both she and the listing agent (who I've dealt with many times over the years, know her unit will probably not appraise.  There are no recent comparables that justify her price because they were all distressed sales.

The fact in this case is that this is an elevator building with an indoor pool and the prices are low enough that there would is a good chance of getting some cash buyers, which did happen.  The seller just retired and is moving out-of-state.  Her decision is to lose money to a young couple she really likes or take the cash offer, which will probably be higher than appraised value, and just move on with her life.

Should we list properties that won't appraise?

Since I've been selling real estate, there has been the question about the value of taking overpriced listings.  In both of these cases each condo was beautifully remodeled and decorated - the cream of the crop.  But how much value does an appraiser give to these updates?  Usually not what the seller expects.  

Both of these overpriced units attracted buyers and offers.  The Oak Lawn condo will be sold.  The Orland Park sellers will probably be spending a long time in their condo and will probably have to put their new construction dreams on hold.

Personally, I might have listed the lower priced condo where I figure there could be cash offers coming in.  I think I would have passed on the other condo.

Posted by
Judy Orr
HomeSmart Realty Group
18305 Distinctive Dr.
Orland Park, IL, 60467
US
Work: 708-536-8200
Fax: 708-249-0074
 
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Rainmaker
219,095
Judy Orr
HomeSmart Realty Group - Orland Park, IL
SW & Near West Chicago suburbs

Jimmy - it sounds like the 1st sellers feel their place is so special that it should appraise.  Good luck to them!  They'll stay put if they can't sell.  The 2nd seller has a choice of 2 offers, one is cash.  She won!

Wayne - I think both buyers are learning a good lesson.  One is ready to start looking again.

Alyse - I wrote the offers.  One was close to where the price should be, and the counter was a lot higher than my buyer's bottom line (close to asking price and won't appraise).  She's moving on to look at other places.  My 2nd offer was a good one, not too far from asking price, but the seller is still contemplating the lower cash offer since we all feel it won't appraise for my buyers with financing.

Oct 21, 2013 03:55 PM #14
Rainmaker
335,488
Dana Basiliere
Rossi & Riina Real Estate - Williston, VT
Making deals "Happen"

Judy,

I would write it up and get an appraiser in there tout suite. Appraisers are starting to allow for the market pickup (at least in out market) so I would play it out quickly.

Oct 21, 2013 10:07 PM #15
Rainer
12,437
Brian Ward
Keller Williams Realty - Sarasota, FL

On the question of taking over-priced listings. I will not do it because eventually the seller gets mad at me for it not selling even though I've advised them tat it is overpriced. Eventually they'll get mad enough to drop you as the listing agent and tell their friends you DIDN'T sell their home.

Second, you'll spend time sitting at open houses in a home that won't sell, and even if it does, it won't appraise.  Where's the payback on that investment of your time.

Oct 21, 2013 11:36 PM #16
Rainmaker
1,527,821
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

It's a tough call & I am having the same problems. It's almost like the sellers didn't live thru the market change. Another example of updating a condo to the hilt & then expecting $ for $ back when you sell.

I've seen this more & more as people are 'testing the market'.  If they never close because of value problems, why bother?  Maybe some agents are telling sellers false things because of lack of inventory too.

Even when the market was great, buyers are just not going to pay anything the seller wants.

Oct 22, 2013 12:17 AM #17
Rainmaker
219,095
Judy Orr
HomeSmart Realty Group - Orland Park, IL
SW & Near West Chicago suburbs

Dana - I wrote up the 2 offers.  The first one is very far apart (we're at where it will most likely appraise, sellers are way off).  Not that much pick-up in our area, especially for condos priced $30,000 above the last recently sold unit.

Brian - I don't like to take ovwerpriced listings either.  Sometimes there just aren't any comps or the house is unique in a positive way.  These were not my listings - I'm representing the buyers, so these agents have to deal with the sellers.  With that said, the 2nd seller got 2 offers.  My buyers have financing and she got a lower cash deal.  I don't think my buyers have a chance, even though she really likes them.

Lyn - it's easier for me to tell a seller they're idea of price is wrong and I show them why.  Then it's my choice whether to take the listing or walk away.  It's harder to explain to buyers that fall in love with these overpriced listings, especially first-timers.  They wonder, if it's not going to appraise then why did the sellers put their place on the market at that price?

Oct 22, 2013 12:58 AM #18
Rainmaker
3,239,598
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Divorce

We  are past appraisals meaning anything in our market...higher down strokes mean that the house/condo will appraise for whatever number they choose...it's about the money....and less risk.

Oct 22, 2013 01:18 AM #19
Rainmaker
219,095
Judy Orr
HomeSmart Realty Group - Orland Park, IL
SW & Near West Chicago suburbs

Sally & David - neither of my buyers can afford to make up the difference if the condos don't appraise.  It could make the difference of them qualifying for their mortgage (one has 20% down, the other has 15%). They don't want to pay more than appraised value, and they shouldn't IMO.  For instance, the 2nd seller paid almost as much for the unit as it is currently listed for 20 years ago.  No appreciation in all that time.  I don't want my buyers faced with that.  

Oct 22, 2013 02:04 AM #20
Ambassador
2,014,075
Michelle Carr Crowe,Altas Just Call...408-252-8900!
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

In an increasing market, as we see in certain parts of Silicon Valley, appraisal is a moot point. However, unless the market (e.g. comps & pending sales) show justification for price, it will likely linger until the sellers get real or it expires.

Oct 22, 2013 11:57 AM #21
Rainmaker
219,095
Judy Orr
HomeSmart Realty Group - Orland Park, IL
SW & Near West Chicago suburbs

Michelle - the 1st sellers are definitely going to be stuck for a long time, IMO.  They're a young couple that want to build a new home but that dream is going to have to be put on hold if they can't afford to sell it at the proper price.  2nd seller got a cash buyer so she doesn't have to worry.  But both of my buyers have to start looking again.

Oct 22, 2013 02:06 PM #22
Rainmaker
656,917
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

It sounds like you're doing the best you can for your clients, explaining the risks.  Still, I've had a couple homes I thought wouldn't appraise, and they did.

Oct 23, 2013 12:32 AM #23
Rainmaker
370,263
Travis "the SOLD man" Parker; Associate Broker
Team Linda Simmons, Enterprise, AL 36330 - Enterprise, AL
email: Travis@theSOLDman.me / cell: 334-494-7846

Bad job by the Listing Agent on at least one of these. The one where there would probably be cash buyers found easily isn't too bad. I've walked away from some over-priced since I knew they wouldn't sell. So far, they've called me back with a better price after thinking it over.

Oct 23, 2013 01:24 AM #24
Rainmaker
219,095
Judy Orr
HomeSmart Realty Group - Orland Park, IL
SW & Near West Chicago suburbs

Joetta - these two condos are about $30,000 higher than the most recent sales - no way they'll appraise.

Travis - I agree.  The listing agent doesn't seem that worried about the price, so I don't think she's doing these sellers any favors.  A condo (condos have been hit hard in our area) priced $30,000 above a recent sale?  I think these sellers will be putting their new construction dream on hold for a long time.

Oct 23, 2013 03:29 AM #25
Rainmaker
838,032
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Judy, we don't take many overpriced listings.  But if they won't appraise, the seller is motivated and they will sell, we let the appraiser be the bearer of bad news.

Oct 24, 2013 02:08 AM #26
Rainmaker
219,095
Judy Orr
HomeSmart Realty Group - Orland Park, IL
SW & Near West Chicago suburbs

Bob, in this case neither seller wants to make up the difference and the buyers don't/can't make it up.

Oct 24, 2013 02:16 AM #27
Rainer
42,199
Jill Penman
ONE SOTHEBY'S INTERNATIONAL REALTY - Coconut Grove, FL
Coconut Grove & Coral Gables Lifestyle Expert!

Hi Judy, a basic understanding of how the appraisal process functions can only work in our client's favor. The only way to close a transaction is with informed, reasonable parties. 

Oct 29, 2013 01:30 AM #28
Rainmaker
219,095
Judy Orr
HomeSmart Realty Group - Orland Park, IL
SW & Near West Chicago suburbs

Jill, in both of these cases we wouldn't have made it to closing.  Thankfully, my one buyer found something else that is priced correctly and my other buyers are out looking again.

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Judy Orr

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