Home must Appraise at or Above Agreed Price or .......................

By
Real Estate Agent with EXP Realty

Most markets across the country are plagued with a drought of listings and flooded with competitive multiple offers. Not all offers are created equal, the listing agent job is to guide the sellers in making the right choice.

Recently, I’ve received offers with the following clause on the financing addendum: “Home to appraise at or above agreed purchase price. Buyers and sellers agrees to renegotiate terms if home doesn’t appraise at agreed value. If no agreement is made, Buyers or Sellers can cancel contract with buyer receiving all earnest money back.”

The first time it happened, both my seller and I were surprised. The buyer is in finance, and is an investor. His first offer came in very low, eventually he inched up, but we were still not agreed on price. His agent said, “He doesn’t want to overpay.” That clause killed negotiation. The seller has a relocation opportunity, and can’t risk the transaction falling apart a week before closing. They feel that the buyer doesn’t really want their home, will be a nightmare throughout the process, and declined his offer.

Twice the next week I got offers with the same clause, all from the same brokerage. I called the agent and asked him what is up with that clause. He said, “it’s because we see so many low appraisals. We just want to keep the dialog going.” 

That isn’t what it says. Negotiation can be a gusty wind to the stratosphere in multiple offers. The winning buyer sometimes wakes up in a cold sweat regretting their win. That clause gives them the assurance that their offer will be backed by an appraisal. The agent is protecting his clients. Or, is he/she?

Once the seller gets over the instant elation of a highest and best offer, they want to know that offer is not going to plummet to the ground. They want to know that the buyer has reserves to cover a potential gap. With FHA, that appraisal sits on the house for any other FHA buyer for 6 months. Last year a buyer had an accepted offer that came in $4000 short with an FHA appraisal. The seller said, “Too bad, pay up or it goes back on the market.”  He didn’t have extra funds, and the seller canceled our offer to put it back on the market. That property sold four months later at $7000 less than we offered.

We have to look at why 25% of appraisals are coming in low. Agents have to know market pricing, and when an offer is out of line. Allowing a buyer to make an offer that they can’t back up is irresponsible. Sellers can’t make up prices, listing agents need to know the condition of the homes that they represent. That clause protects the buyer from themselves but puts 100% of the risk on the seller. How would you respond to that clause?

Posted by

Mary Jo Quay

“That’s what I do: I move people—H O M E.”

 Phone: (612) 384-1360

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Rainmaker
3,712,480
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Mary Jo, I see that clause in so many contracts now from buying agents.  I guess it makes sense.

 

Jul 13, 2017 08:55 AM #1
Rainmaker
2,303,382
Patricia Feager, MBA, CRS, GRI,MRP
DFW FINE PROPERTIES - Flower Mound, TX
Selling Homes Changing Lives

Mary Jo Quay - Texas has been in a Seller's Market longer than most. Right now, in my area, the jury is still out for that escalation clause. It hasn't been approved and we can not practice law (here, we don't have to have an attorney, unless the clients want one). Verbiage like what you described would be a violation (practicing law) in TX. 

I can tell you, when it comes to appraisals, even if buyer is willing to pay more, taxe will be impacted. I hope your clients listen to you. You're one of the best there are in your area and I would take your advice, even if I am an agent in Texas. In MN, I'd most definitely listen to you!

Aug 21, 2017 08:34 AM #2
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Mary Jo Quay

I Move You Home
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