Home Buyers - Protect Yourself From The Big Bad Appraiser

By
Real Estate Agent with Jeff Fritzson Real Estate, Ebby Halliday Realtors 0629874
https://activerain.com/droplet/4jbr

First off, appraisers are not bad. Some may be big, but the majority are not bad. These people work to protect the lender—not the buyer or seller. Both buyers and sellers need to be aware of how an appraisal can impact your transaction. Whether you are using a Realtor to buy or sell your home or if you are representing yourself, which of course I do not think is your best option, please protect yourself from an appraisal that does not meet or exceed the agreed upon sales price.

How To Protect Yourself

If you are a buyer and you are putting more than 20% down you may not be protected, at least in Frisco or other areas of Texas, if your appraisal comes in lower than the sales price. The lender may still approve the property and you may be stuck paying the full price of the home. Your financing "out" of not being approved may be gone. This is where you need to know how to write an addendum to the contract which protects you from the under appraisal.

If you are a seller and you receive offers above your home's value you will need to understand the financing of the offers in order to determine which one will give you your best success and best odds to close. I did not say provide you the most profit as that may not be your number one concern when selling your home. If you decide that you wnt to sell your home for $350K and you receive offers of $355K, and two for $360K there are certain things you should understand. First congratulations! Then start looking at the strength of each offer. If your house only appraises at $353K how would each of those offers play out. WHich one will agree to bring more to the table than the appraised value? How do you protect yourself from having to re-list your home on the market?

A well educated and experienced Realtor® should be able to answer these questions efficiently and effectively. Ask questions and find out how they are protecting you as a buyer or seller. If you are doing this on your own, think twice. Ask for assistance. This is one of your largest investments ever. Are you comfortable with this situation? 

Click here for more information about appraisals in Texas and other areas. If you are looking to buy or sell your home in North Texas, please give me a call and find out what my other clients know: Your Success is My Focus

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Winston Heverly 02/09/2015 12:08 PM
Topic:
Home Buying
Location:
Texas Collin County Frisco
Groups:
Active Rain Newbies
Realtors®
1st Time Buyers
Real Estate Rookie
Frisco Texas Real Estate
Tags:
appraisals
frisco tx
home seller
home buyers
under appraisal

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Rainmaker
1,367,527
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

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

Jun 18, 2014 11:49 PM #7
Rainer
353,764
Dwight Puntigan
DRP Realty, LLC - Saint Peters, MO
Dwight Puntigan

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.

Jun 19, 2014 12:37 AM #8
Rainer
471,564
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

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?

Jun 19, 2014 12:39 AM #9
Rainmaker
530,869
Jon Quist
REALTY EXECUTIVES TUCSON ELITE - Tucson, AZ
Tucson's BUYERS ONLY Realtor since 1996

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.

Jun 19, 2014 12:53 AM #10
Rainer
96,912
Jeff Fritzson: Frisco Real Estate Pro
Jeff Fritzson Real Estate, Ebby Halliday Realtors - Frisco, TX
Your Success is My Focus!

Hi Joan - to protect the seller is very similar to how you protect the buyer. When the seller receives multiple offers, it is important to know who is willing to bring extra cash to make up the difference on an under appraisal. I add an exhibit under other and have the comment that the buyer is willing to bring up to $XXX to bridge the gap between appraisal and sales price. From there if it still does not make it we negoatiate.

Hi Laura - thank you for your comment. You make it sound easy.

Hey Joe - Thank you for your kiond words and comment. I know you have to deal with appraisals all the time.

Hi Richie - that is exactly right. THe appraiser works for the lender and protects them not the buyer or seller. Thanks for commenting.

Hi Michael - crafting a strong offer is as important as interpreting one. Good agents know how to do that. Thanks!

Hey Dwight - getting multiplke offers especially over list is a fun place to be for both the agent and the seller. You certainly learn a lot about agnets when you do that. Thanks for commenting.

Hi Kimo - some agents do not understand the contract as well as others. KNowing where to protect and limit exposure while still making a strong offer can be challenging for some. Protecting the seller is also important. Communication rules in this situation. Thanks for your comments.

Hey Jon - in most situations in Texas that is true. However, since I do not know Arizona it would be interesting to learn if it is strictly if the home doesn't appraise or if the loan is not approved. You can put 50% down on a $400K home and the home appraises for $390 but the bank will approve the loan as there is so much money being put down that their loan is still covered. If the loan is approved regardless of the under appraisal the buyer is not protected by the lower appraisal in Texas unless you call it out. Thanks and I would reall enjoy learning of AZ is focused on the appriasal or the loan.

 

Thanks to everyone for taking the time to read and comment.

Jun 19, 2014 02:15 AM #11
Rainmaker
679,861
Pat Champion
Coldwell Banker Camelot Realty - Mount Dora, FL
Call the "CHAMPION" for all your real estate needs

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

Jun 19, 2014 04:07 AM #12
Ambassador
1,549,753
Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

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. 

Jun 19, 2014 04:45 AM #13
Rainer
96,912
Jeff Fritzson: Frisco Real Estate Pro
Jeff Fritzson Real Estate, Ebby Halliday Realtors - Frisco, TX
Your Success is My Focus!

Hi Pat - thank you for your kind words and comment.

Hi Karen - I follow almost the same steps. I also ask the buyer's agent if the buyer is in contract or in negotiation on other offers. Real buyers stay and the game players usually back off. Thanks for your comment.

Jun 19, 2014 04:53 AM #14
Rainmaker
908,388
Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

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. 

Jun 19, 2014 06:20 AM #15
Rainmaker
1,326,650
Jeff Jensen
The Federal Savings Bank/Lending in 50 states - Greenwich, CT

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

Jun 19, 2014 07:26 AM #16
Rainer
7,258
Janet Thompson
First Team Real Estate - Aliso Viejo, CA
"Let me help you with your real estates neeeds"

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

Jun 19, 2014 09:03 AM #17
Rainmaker
1,431,110
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

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.

Jun 19, 2014 01:01 PM #18
Rainer
140,265
Keith Whited
RE/MAX Gateway - Alexandria, VA

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

Jun 19, 2014 01:11 PM #19
Rainmaker
1,057,402
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

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.

Jun 19, 2014 02:18 PM #20
Rainer
96,912
Jeff Fritzson: Frisco Real Estate Pro
Jeff Fritzson Real Estate, Ebby Halliday Realtors - Frisco, TX
Your Success is My Focus!

Hi Pamela - here in Frisco and other parts of the DFW metroplex are in multiple offer situations. Even multiple cash offers. Buyers here seem to be willing to pay extra for the homes above appraised value. We have people moving into Texas from all over and those from California are brining lots of cash. that iswhat is inflating our prices.

Hi Jeff - you said a mouthful. There are not too many things worse.

Hey Janet - an agent is not trying to influence an appraiser when giving the appraiser packet. They are merely providing them with up to date important information they may or may not use in the creation of their opinion on the home being appraised. It is our job to help them.

Hello Gene - that is very true. Many buyers are going in very high and figuring they will negotiate when the appraisal comes in low. That is why we protect the seller when we can.

Hi Keith - thenk you for the comment and kind words.

Hi Sharon - that is a great point. ALways trying to avcoid the dreaded MIP but protecting yourself from a lower appraised value.

 

Thank you all for taking the time to read and comment. Some great comments full of ideas that compliment and support buyers and sellers.

Jun 19, 2014 11:29 PM #21
Rainer
82,764
Jim Miner
Miner Noh & Associates - Phoenix, AZ
Loan Modfication & Short Sale Specialist

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.  

Jun 20, 2014 10:52 AM #22
Rainer
96,912
Jeff Fritzson: Frisco Real Estate Pro
Jeff Fritzson Real Estate, Ebby Halliday Realtors - Frisco, TX
Your Success is My Focus!

Hi Jim - Phoenix and cool just never seem to go together but I can empathize. One of my best friends got caught upside down in that market. Sorry you are having to go through that situation. Thank you for taking the time to read and comment. I hope things pick up for everyone.

Jun 20, 2014 10:57 AM #23
Rainmaker
303,133
Kate McQueen
CB&A Realtors - Cypress, TX
Tailored service for your real estate needs!

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.  

Jun 30, 2014 02:11 AM #24
Rainmaker
303,133
Kate McQueen
CB&A Realtors - Cypress, TX
Tailored service for your real estate needs!

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.

Jun 30, 2014 02:17 AM #25
Rainmaker
797,359
Troy Erickson AZ Realtor (602) 295-6807
Good Company Real Estate www.ChandlerRealEstate.weebly.com - Chandler, AZ
Your Chandler, Ahwatukee, and East Valley Realtor

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.

Feb 09, 2015 02:36 PM #26
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Jeff Fritzson: Frisco Real Estate Pro

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