Home Buyers - Protect Yourself From The Big Bad Appraiser

Jeff, very good point about reviewing multiple offers. Selecting the highest priced offer may not be the best option.

I could enjoy that.  Evaluating the strength of each offer.  Having interesting conversations with the various agents.  It could be an opportunity for another learning experience.

Certainly, most buyers wouldn't pay more for a property than its appraisal, yet there are some that will because of intrinsic benefits. Agents usually include contingency clauses to protect their buyer, so are you implying that agents don't provide this protection?

In Arizona a buyer is protected by the actual contract. If property doesn't appraise and the seller won't come down, the contract is cancelled and earnest money refunded.

Great post you are right the seller must decide which offer is best for their situation. Thanks for sharing have a great afternoon.

We see this all the time. The buyers will write well over price and value just to win the deal...then plan to renegotiate once the appraisal comes in, when they feel the buyer is very invested in the sale. So....for me, write the offer as high as you like. But our counter will include a not-to-exceed dollar amount over appraisal that the buyer agrees to up front. I will also ask for a larger deposit on these types of offers. Often, these buyers disappear with these terms. 

Jeff, interesting strategy. It's standard practice to keep the home buyer's appraisal contingency in place so that buyer can cancel without risk, if they are getting a mortgage loan. I see your point for the seller's side, but unless the offer is written without appraisal contingency, I doubt home buyers, even those paying all cash, would accept paying more than appraised value. In my market area today it looks like sellers are accepting offers less than list so multiple offers are a phenomenon of the past. It was very common a few years ago, but I know Texas is a hot market compared to SoCal. 

There is nothing worse than an AMC sending someone who does not know the market.

No one knows the home, the neighborhood, the city, and the comparables better than the listing Realtor.  It is supposed to be an "arms length" transaction between the appraiser and the listing Realtor.  The listing Realtor's knowledge of the home can be an asset to the appraiser, not only to point out the newly upgraded kitchen, bathrooms, room additions, and the view, but the items that are not easily seen like the new forced air heating unit in the attic, solar panels on the roof or newly installed copper plumbing.  Any help we can be to let the appraiser come to the right appraisal price is an asset.

Janet Thompson

Star Real Estate South County

I think your point is sometimes a lower offer that is removing the appraisal contingency is much better than a higher one that leaves it in.

Appropriate post for a market where we are seeing an increasing number of multiple offers above asking price.

Jeff, this is important information for buyers and sellers.  Putting 20% down saves buyers from paying MIP.  It also puts them at risk for paying the difference between the agreed to sales price and the appraised value.

All of you folks and your hot markets, come to phoenix and revisit a cool market.  Down come the appraisals from last summer, now we have a fresh crop of owners who are upside down.  

Excellent post and very good points, Jeff.  I would definitely want you on my side if I were selling my Frisco area home.  Too many agents are not sure how to handle a transaction that appraises under the contract price, and this can create a dilemma for both sides.  

I want to add that I did a buyer side transaction recently that offered well above list, without addending for appraisal under contract.  I PRAYED that it would appraise at contract, and fortunately it did.  We didn't addend for it since we knew how extraordinarily competitive this property was.  We just jumped out front with what we thought would win in order to forego the process of highest and best.  The buyers were willing to do this based on the expected continued increase in property values in the area, and the length of time they intend to live in the home.  However, there are cases where this IS NOT IN THE BEST INTEREST of a buyer, and you've made a good case in this post.  In the instance where a buyer is putting 20% down, and the property appraises at $3000 under contract, the buyer would either need to put up the additional funds or become subject to PMI.

Jeff - Following up on the AZ appraisal contingency. Our contract states,"Buyer’s obligation to complete this sale is contingent upon an appraisal of the Premises acceptable to lender for at least the purchase price. If the Premises fail to appraise for the purchase price in any appraisal required by lender, Buyer has five (5) days after notice of the appraised value to cancel this Contract and receive a refund of the Earnest Money or the appraisal contingency shall be waived."

So, to answer your question, it has nothing to do with whether the loan is approved or not, that is actually a separate contingency. The appraisal contingency is strictly based on whether the home appraises for the purchase price no matter how much the buyer is putting down as a down payment.