All over the valley, I am seeing clients “lose out” after putting multiple offers in for a home – mostly in the sub-$200,000 range. Bank owns the property, puts it on the MLS, the offers pour in and more often than not I see my clients (those that don’t have enough cash to buy the property outright) lose out to cash buyers.
If I had to pick a number of the average times I see someone who wants to live in the home and finance it with a mortgage have to put in an offer before they actually “win” and get the offer accepted… I would guess anywhere between 3 and 5 times.
That means anywhere from 3 to 5 times the buyer falls in love with a house, puts an offer in and just hopes that the seller (usually the bank) accepts the offer. When you hear that, what is the first thing that you think of? If you are a real estate agent, you might think of how many times you are going to have to drive around to look at properties.
The first thing I think of?
I hope the property appraises for whatever they offered to “win” the bidding.
The second thing I think of?
I hope that I can get at least one underwriter to agree with the appraiser and not cut the appraisal for some reason.
If you are someone who is interested in buying a house but find yourself losing out in the current bidding wars going on and decide to bid over asking price – be aware of what potentially could happen even if you win the bidding.
If your offer is accepted, the next step is to have your property appraised. Remember, appraisals are just one person’s opinion of value – and you may be surprised at how different “opinions of value” can be. A normal person might think “seller is willing to sell at X, buyer is willing to buy at X, property must be worth that much, right?”
Lately I have seen more than one appraisal come in under contract price – even as much as $50,000 under contract price (that is a high % when we are talking an under-$200k home) and if your appraisal comes in short, you basically have these options:
- Cancel the contract because the property did not appraise for the sales price
- Get a different appraisal done
- Negotiate with the seller to lower the sales price to the appraised value
- Bring the difference between appraised value and sales price to close in cash
So if your appraisal comes in at sales price, you should be fine, right?
But more than once lately, I have submitted a loan to an underwriter who decided that they didn’t agree with the appraiser on what the value of the property and decided to just “cut” the value to what they thought it should be.
Now if you find yourself in this situation, there is one thing that any good loan officer knows – it isn’t a bad idea to submit the file to multiple lenders if you have concerns about the appraised value. Lenders don’t particularly like this because they may end up taking the time to underwrite the file and it may close with another lender – but it is one of the dirty-little-secrets of how to deal with an underwriter who doesn’t like an appraised value.
And in my experience, as long as you do what is best for the client, everything else will fall into place.
About the Author: Justin McHood is a mortgage broker with VanDyk Mortgage Corporation. You can find him at Arizona Mortgage Team, on the Zillow’s Mortgages Unzipped Blog, and at most East Valley Friday Nights gatherings. He’s the one in the blue shirt.