Do you ever get nervous?
Sometimes I do.
And lately, I have found that one of the things that makes me nervous keeps cropping up in the currently-crazy-real-estate-market that is happening in Arizona and other parts of the country as well.
Multiple offers from buyers on a house make me nervous.
Anytime I have a client who “wins” a bidding war on a house and then comes to me to talk about financing options, I get a little nervous.
I want to tell them “congratulations” and be as excited as they are that they just beat out all of the other offers on the house, but I find myself offering words of caution.
Why?
Because if you want to finance a house, your financing is going to be based on the appraised value of the house, not the sales price.
And whenever there are multiple offers involved, I get a little nervous that if you were the “winner” of the bidding war - the property that you just “won” won’t appraise for the sales price.
If you just won a bidding war, and the appraisal on the house is for lower than your agreed sales price, there are 4 common possible outcomes regarding multiple offers and appraised values:
- Your agent goes to the seller (often it is the lender because the property is bank-owned) and gets them to agree to a lower sales price.
- You agree to bring in the difference between sales price and appraised value in cash to closing.
- Order another appraisal and hope the appraisal comes in at the sales price
- You cancel the contract and go find another house.
Now.
If my math is correct… you have a 25% chance of a positive outcome (the sales price is lowered to the appraised value), a 25% chance of a hail-mary-hopefully-will-be-possible-outcome (order another appraisal and hope it comes in at sales price) and a 50% chance of a less-than-positive-outcome (bring in the difference in cash or cancel the contract and find another house).
25% chance for a positive outcome?
No wonder I get a little nervous.
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Comments
4 Comments so far
Candace Robinson
A good agent would have already done a solid CMA to give the buyer a good idea of what the home’s fair market value would be, buying up in this market is not a smart move! The banks/lendrs deal with offers completely different from bank to bank! If you are putting in an offer on behalf of your buyer, why waste your time (or your clients times) if you believe your just representing them to this point of the transaction and you are not going to make the appraisal. Most buyers won’t come to the table and waive the appraisal in this Arizona market! I wouldn’t recommend it at this time, there was a time a few years ago it was happening but not now! Don’t do it! Let that the lender move on to the next buyer! Be wise and know the CMA for that buyer’s desirable home/neighborhood, it’s your job as an agent/broker!
Tom Maison
Good article Justin - short and sweet, to the point.
Unfortunately most realtors won’t take any of this into consideration and will simply bid until their client says stop - they’re goal is to get the contract accepted and lay it on the loan officer later.
There’s no ‘I’ in ‘team’.
Jackson
I do alot of bank owned transaction in the East Bay, CA and I was lucky enough to come across a Wells Fargo bank who agreed to drop the sale price from $250,000 to $213,000! This was back in Feb 09 and I believe it was only possible because she was getting a loan from Wells Fargo directly. Could of been the double end deal for them so they were more eager to accept this term. 25% percent was worth taking for this happy buyer. =0)
Multiple Offers and “Winning” the Bidding War
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