Buyers, right now let’s face it, there seems to be a shortage of homes on the market. There actually has been for quite a while, but it has gotten worse which means that prices are going up once again. Good for sellers, bad for buyers.
With that in mind, many buyers are having to sign a counter offer from the seller which is removing one thing that actually has been in place to protect the buyers from over paying for a home…the appraisal. Once the appraisal contingency has been removed, the buyer must understand that they will have to make up the difference in the sales price to the appraised price and this could be a substantial amount of money. I have seen homes appraise for $10,000-$50,000 more than the list price. So, eliminating the appraisal contingency is a risky business because you could lose your deposit that you put down in the first place when you opened up escrow.
The market is hot, prices are soaring and this has created this frenzy of supply and demand. Appraisers and realtors alike are having trouble even pricing homes in this market. Realtors can only do our best to look at comparable homes that have sold, but when everyone seems to be willing to over pay for homes, prices are just going up it seems quickly. We don’t know what the homes are closing for that still have not closed. Many agents are not cooperating if we call them (and I have called a few to ask them what they did open escrow with) to let us know because it seems it’s a dog eat dog world amongst other agent who don’t want to help other agents either. Some agents get upset that you have a possible listing in their “farm area” and don’t want to help. So, we have to sit and wait to see what that house closed for and so we wait.
Many agents advise their clients that they can get out of the escrow if they don’t like the amount that the house appraises for and they tell their clients they can get out for other reasons. This is true to some degree that if they don’t like how the inspections come out-say there is a leak in the roof etc or some type of mold etc. They have that contingency they can get out of buying the house with. This is true…but many agents are tightening the inspection periods some to 7 days which means you would have to have the inspections all complete before that time period. What can be a damper is getting an appraiser out there quickly with this market or even getting the appraisal back quickly. You could have all the inspections done and not have anything wrong with the home. Or should I say nothing substantial. And, not have a reason to not buy the house. Then you have the appraisal come in for a lot more money and have to pay the difference from the sales price to the appraised price.
One thing I have my buyers sign the the CAR form called Market Conditions Advisory. Meaning they know they know that I don’t control the market when it comes to prices and they are in control making the decision to buy at the price they do.
So, removing the appraisal contingency up front is up to you. If paying more for a house is worth it to you to get the house now, then it is worth it for you. Sometimes, if you want a house, you need to do what you need to do to obtain it. If that means paying more than the list price, then do so. And, if removing your contingency that was there to protect you in the first place for the appraisal is something you want to do, it is your choice after all.
Joan Patterson, B.A., G.R.I., A.S.P., Realtor, License #01431647