A buddy listed his house that he has lived in since May 2018 and received 11 offers within two days. One was 13% over list and then he had multiple at 8.7% over list (I.e. 20-30,000 on $230,000 list). The comps are around his list price.
He is concerned if he takes the highest offer that it won’t appraise and then he’s going to be stuck either renegotiating or relisting. Someone else was telling me that just happened to them.
Are buyers offering high numbers expecting the appraisals to come in low so they can pull the price back down?
Not likely. They are probably offering a higher price because the market is ridiculously out of control and they've lost out on previous homes by not offering enough.
Don't worry about it. If the appraisal comes in lower, the buyer can pay the difference out of pocket, back out, or you negotiate a lower price. Your friend should only back down to where the other offers were. If the Buyer walks, you put it back on the market and try again.
@Ben Crego Not sure about FL but Texas there is an appraisal addendum that addresses this right off the bat. Basically buyers say up front how much higher above appraisal they will pay without renegotiating. It can be an assurance for the seller and help determine which is actually the better offer. See if your friend can get the buyers to fill something like that out but the first post is right, so many buyers have been losing out they're going way over just to get the contract
We have started making buyers agree up front to pay the difference over list price and show proof of funds.
Almost all my properties go for more than list. If I sell to a financed buyer, he/she must have proven funds available to bring to closing in the event of a appraisal shortfall and this is addressed in my contract via an appraisal addendum. I'm guessing your friend isn't aware he shouldn't accept an offer without understanding how to address this contractually.
Yes....Plenty of agents and buyers throw out crazy high prices with hopes that appraiser will fix them. Sometimes that works, sometimes it doesn't. If they then think they are overpaying for the house, they may be willing to walk away from earnest money vs paying too high of a price. If it comes in low, then chances are they will try to renegotiate. That's what they're hoping for. Also the appraisal addendum does not fix everything....especially for low margin buyers.....I would want some of those funds in option or non-refundable earnest money. Very few are probably submitting proof of funds to close the appraisal gap with the offer price.
It’s funny to see the commentary in other markets. I’ve always said that the Bay Area market here in CA is one of the most unique and challenging markets to master. Buyers are bidding hundreds of thousands of dollars over asking in cases out here. They are also doing so and waiving all contingencies. A buyer, that is, is waiving their rights to forego the purchase of the home doesn’t appraise or they can’t get a loan or they discover something during inspections. With an average price of about $1.2M out here, that’s upwards of $30k that buyers are gambling. Astute sellers and agents, however, are verifying proof of funds to close and make up a the difference where things don’t appraise before accepting any offers. Additionally, sellers are “enabling” buyers to do this by getting the home inspections done ahead of time... essentially disabling the buyers from having grounds to renegotiate though. So it’s really to the sellers advantage to do this.
I just had a client compete against 32 other offers on house listed for $699k. 10 offers were over $700k (including my client’s, non-contingent with 20% down and fully underwritten loan approval), 10 of which were over $800k and 10 of which were over $900k... that’s more than $200k over asking... non-contingent. And this for an average home, 3/2 with 1200 sq ft.
Buyers have been starving for inventory out here in CA, especially since the SIP. This market is just phenomenal to be part of. It’s requires incredible creativity to succeed in and lots of client education.