AGENT SUGGESTS I OVERBID AND SEE IF HOME APPRAISES THEN NEGOTIATE

44 Replies

Hello,

   I'm trying to buy my first home to live in and the market is pretty hot right now in Newark. I was interested in a particular property, but I don't think its worth the cost of what they are selling it for after looking at data, area, comps etc. My agent is advising me to perhaps give them close to asking price or more and if it does not appraise we can renegotiate for a lower price later.  

Is this good advice? Do most sellers usually lower the price if their home does not appraise for the price of the accepted offer?

Is this a clever way to beat out the competition to get a property you want or is this a bad idea?

I would be going into the situation hoping that it will not appraise because I already "know " or assume I over bid.

My realtor claims that if it does appraises to the high offer price, at least I will be reassured that it is worth that price.

I'm just not sure if this is a smart way to go about this, but with bidding wars and low inventory I need to figure out what to do gain a desirable home.

This is a common tactic in competitive markets.  Some sellers realize this also, so they may want a clause that the buyer will pay $X over appraisal, or maybe not.  If you’re willing to pay appraisal price, there is no risk to you.

@Anne Williams
The first question I'd have is what kind of expereince does your agent have? Are they a VERY experienced agent with a good track record who really knows your market? 
If so then I'd say they probably know better than anyone on here as to what the best option is for your market today. 
However if they are not an expericed agent then you might want to get some other opinions. 
Did you sign an exclusive agreement with them? 
I've heard of this stategy being used and if it's a property you're looking to buy to live in then the comps including recent sales and expired listings should tell you the story. 

I will say this as a rule, sellers always think thier home is worth more than it is, buyers always think it's worth less than it is. 
The truth is usually somewhere in the middle and if the Listing agent did thier job well then hopefully the asking price is reasonable. But again the local market dictates that. 
Last thing to consider is how long has it been on the market? If it just hit in the last couple of days and it's truely a good price it probably goes pending quick. 
If it's been on the market for a month or more than it's probably priced to high. 
Again this is just general though as every market has it's own quirks. 

Best of luck in your search for a new home. 

@Anne Williams Example:

Your offer,  $200k

Lender Appraisal.  $180k

Some sellers, not most, may insert a clause in the purchase agreement that buyer will pay $5-$10k above appraisal price, if appraisal comes in lower than your offer price, up to the amount of your offer price. So, in this case you’d pay $185 to $190k, which would require you to make an additional down payment of $5-$10k.

@Anne Williams I don’t know your market but I don’t think this is a good strategy. I’ve bought 10 units at this point, in various markets (nyc, Atlanta, Detroit) and only had 2 appraise for less than the offer price. One was under by a couple of thousand and the seller grudginly came down. The other, which I didn’t buy, appraised for ~$40k less than offer and seller refused to come down. We wanted the property but had to walk away as the gap was too large and sellers were not reasonable. I don’t think you should offer more than you want to pay for a property or more than you think it is worth. Hope isnt a good business strategy...based on my small sample of 10 units, there‘s a ~10% chance that the plan will pan out. My realtor told me the same thing initially “hopefully it will appraise low...” so far that hasn’t really worked out for us

To be clear, this is for you to live in, correct? Ie, it's not an investment property.

If it was, I'd say no way in hell. You make your money when you buy, don't overbid and play the appraisal game. Side note: my former business partner and I partnered up with another group that apparently was bidding high on REOs then beating them down after inspections. Before long, they were blackballed by REO agents.

this is a good strategy for your agent and the seller. For you, not so much. You will either not get the house or get it for more than you wanted to pay.

@Anne Williams   A couple of things come into the equation.  First, your down payment.

Last year, I sold a property for a BPer and was able to stoke up a bidding war.  We listed $25K below market value and then sold at $49K over asking.  I knew there was no shot that it would appraise.  BUT the buyer came in with a $63K down payment, so I also knew that that amount would more than cover the difference.  

Next, I'd look at how experienced the seller's agent is.  Bidding very high and then hammering the price down with inspection and appraisal is such a common technique that a sharp agent won't fall for it.

If it were me, I'd counter the offer with clauses that would protect my seller against those attempts.

@Anne Williams offer what you feel the property is worth to you. Appraisals are known to be wildly inaccurate, so it is very possible something can appraise for more or less than true market value. So just because the appraisal supports your price, doesn't mean you could resell for that the next day. 

Originally posted by @Joe Splitrock :

@Anne Williams offer what you feel the property is worth to you. Appraisals are known to be wildly inaccurate, so it is very possible something can appraise for more or less than true market value. So just because the appraisal supports your price, doesn't mean you could resell for that the next day. 

Joe I see this as highly regional.. when we were flipping in Dallas almost all appraisals came in low and we had to negotiate.. it was frustrating and since the homes were FHA buyers they no had any more money to make up the delta.. and with the uber high tax's there you just have to let them go and make less or break even on the flip.. we just were not efficient enough to compete there.

In Oregon and Charleston were we do true NEW construction for retail in the 450 to 2 million price points.. we have not had one appraisal come in low.. they come in at our sales number.. and this last community we built.. the exact same house we built the year before on the same size lots we sold for 75k more.. and they still appraised.. that's good appraisers keeping up with rising markets.. in Texas it was not that way the appraiser were not tracking the rising market like they should have.

For the average homeowner to use this strategy could lead to some frustration of making offers paying for inspections and appraisals and then trying to negotiate down only to have a sale fail and be out 1k or more and the time involved.. Most retail buyers hone in on a house they want THAT house.. and they are not looking to waste appraisal and inspection fee's and make a bunch of offers .. its not like all the houses are the same..  investors I can see this.. they are more numbers driven and a house is a house if it fits the area they want to buy in.. and are not emotional about the purchase at least most..  

Originally posted by @Joe Splitrock :

@Anne Williams offer what you feel the property is worth to you. Appraisals are known to be wildly inaccurate, so it is very possible something can appraise for more or less than true market value. So just because the appraisal supports your price, doesn't mean you could resell for that the next day. 

 Yup. 95% of the time the appraisal will be within a few grand of the contract price....because the contract price is a juatification of value for the appraisal. The appraiser will then look to see if there are properties that support that contract price.

Originally posted by @Wayne Brooks :

@Anne Williams Example:

Your offer,  $200k

Lender Appraisal.  $180k

Some sellers, not most, may insert a clause in the purchase agreement that buyer will pay $5-$10k above appraisal price, if appraisal comes in lower than your offer price, up to the amount of your offer price. So, in this case you’d pay $185 to $190k, which would require you to make an additional down payment of $5-$10k.

I would absolutely insert this clause into a contract where a bidder over-bid the listing price.  

Anne, I think this is some of the worst advice you could receive.  Instead, be patient, do your own research (not simply relying on an agent) and only make offers that you are 100% confident that the property you are offering on is worth the offer you are making.  IF you are not comfortable closing for the price you offer, then do not make the offer. 

BP isn't about hoping to only pay full retail price. We are investors that buy right.

Please, please, just let me buy for top dollar. My only hope is I just don't overpay by TOO much. LOL

You need a seller with a problem.  Solve their problem and buy at a reasonable price!

@Anne Williams . I generally agree with not overpaying for a property. Regardless, if home is just New On Market, Seller probably expects to get close to asking price, or more!

With respect to all the comments about agent qualifications, etc - agree wholeheartedly. If you don't see the value - don't move forward. 

On the other hand, with low inventory, if a few thousand dollars over asking price wins the home - it could be a smart choice for a personal residence. For example, an additional $5,000 in loan balance will increase your monthly payment by slightly less than $28.00 on a 30 Year Loan. If that additional payment works for you - it could be a wise choice! It's a lifestyle and personal values choice. 

Markets may slow down, however, notwithstanding any significant negative changes in economic conditions, I would expect markets to pickup and home prices to go up again in spring 2019. Considering that, this particular property might be worth $10,000 in 6 Months.  

One of the things I always tell clients when we miss out on a home - be patient and we'll find another one - you'll like even more!

There will be another one - Good Luck with your decision. 

Ehhhh that sounds sketchy to me. The seller doesn't have to live with you paying to much and neither do the agents. I would instruct the agent to offer the most you're willing to offer. If that's not competitive enough then so be it. 

As a seller with a house in a hot market right now (not too far from you, but a different market nontheless) dealing with an appraisal issue, I would say this is a bad tactic. A seller in a hot market with a correctly priced house will simply tell you to make up the difference, fight the appraisal, or walk from the deal when you try to lower your offer.

My house sold for $240k and appraised. Buyer walked away days before closing and it went on the market. Had two offers and sold for $241k. New appraisal comes in at $215k... $25k less than the last one. I WILL NOT sell my house for $215k and the buyer knows it. They are currently fighting tooth and nail with the lender to use the last appraisal (the appraiser is an accepted on for the lender) in an effort to keep the deal alive.

Just tossing out my opinion from the other side of the table with a low appraisal.

There's no guarantee that the sellers will meet you in the middle. We sold a home last year and the appraisal came in about $10,000 under. We were already wondering if we should pull it off the market and install new flooring before relisting it, so we refused to budge. Our agent shared with the buyer that we'd just put in new flooring and list if for more if they walked. The sellers brought the extra $10,000 to the table. Not all sellers are in a hurry or willing to budge in this market. If it's the most important and biggest item they own, they want to get as much as possible. I would only offer what I believed the property to be worth and not a penny more. Don't get married to a deal and be ready to walk if there's a big margin between appraisal and offer. 

PS - Not all appraisers are the same. We have a really crummy one where I live. Appraisals fall short all the time because he wants to personally control the market.

Originally posted by @Steve Vaughan :

BP isn't about hoping to only pay full retail price. We are investors that buy right.

Please, please, just let me buy for top dollar. My only hope is I just don't overpay by TOO much. LOL

You need a seller with a problem.  Solve their problem and buy at a reasonable price!

This isn't an investment property she's buying, there's "value" to some people to buy the house they want/where they want as their primary. It isn't overpaying, rather it's defining the value placed on the property in real dollars.

Is this an investment agent? Because this suggestion would get a laugh from me. I don't get into bidding wars.
Originally posted by @Matt K. :
Originally posted by @Steve Vaughan:

BP isn't about hoping to only pay full retail price. We are investors that buy right.

Please, please, just let me buy for top dollar. My only hope is I just don't overpay by TOO much. LOL

You need a seller with a problem.  Solve their problem and buy at a reasonable price!

This isn't an investment property she's buying, there's "value" to some people to buy the house they want/where they want as their primary. It isn't overpaying, rather it's defining the value placed on the property in real dollars.

 You're right, Matt. Because it's a primary residence, math doesnt apply I guess.  Justify it however. Pay whatever.  Worked out great for tons of people 10 years ago...

Originally posted by @Steve Vaughan :
Originally posted by @Matt K.:
Originally posted by @Steve Vaughan:

BP isn't about hoping to only pay full retail price. We are investors that buy right.

Please, please, just let me buy for top dollar. My only hope is I just don't overpay by TOO much. LOL

You need a seller with a problem.  Solve their problem and buy at a reasonable price!

This isn't an investment property she's buying, there's "value" to some people to buy the house they want/where they want as their primary. It isn't overpaying, rather it's defining the value placed on the property in real dollars.

 You're right, Matt. Because it's a primary residence, math doesnt apply I guess.  Justify it however. Pay whatever.  Worked out great for tons of people 10 years ago...

 Being able to afford something or not isn't the discussion. It's assumed she can hence why she's making offer. 

Think of it like a car, would you pay more for the EXACT car you wanted in stock and drive it back? To some people that's more valuable than driving a car that isn't exactly what they want but has bigger savings.

For what it's worth I rent my primary because the math is far cheaper. I also drive a car that I don't really like with no options because it had the best discount since no one want.HoweverI have many friends who hate the feeling and buy because of the security of "owning" provides. I also have friends who are debt free but math would suggest they could out perform the debt. Not worth it to them, debt free provides greater value.

As a strategy it's a great idea. As I said to my students for years: "Until you have a signed contract you have zip".  So get it signed up at any amount them negotiate.  You've got nothing to lose.

I do this in My market all the time. Send me a contract is my first reply to anybody offering me a property. I ignore the price, step 1 is to get to the front of the line.  Then the work starts.