Life has a certain amount of bluff to it. Real estate is no different and in fact may carry even more bluff than the every day.
Consider the act of pricing a home for sale. You research the comparative sales, look at market trends and then either price your home in line with the rest or take a chance, price it a bit higher and see if someone’s willing to call your bluff and offer what’s in line.
The bluff plays out even more often on the buyers’ side of things. Is that first offer the best offer a buyer will make? (If it’s a bid on a bank owned home in the current market, it had better be.) How often will the buyer really be willing to move toward the middle before calling it quits and moving on?
And, for that matter, does the offer written represent what the buyer is willing to pay or is the buyer hoping for an appraiser to bail them out?
The standard Arizona Association of REALTORS contract carries an appraisal contingency on all financed offers. Unless waived, this contingency says the house must appraise for the agreed upon purchase price (because a buyer’s loan is based on the lower of that sales price or the appraised value.) If the appraisal doesn’t come through, the buyer either can waive the appraisal contingency or cancel the contract.
Not included contractually is the possibility of a seller lowering his or her price to match the appraisal, which remains the most common end result. (Why isn’t it included? Most likely because sellers would revolt if they were told they don’t know what they’re really going to sell for until the appraisal comes in. It’s a bit of balance that allows the seller to tell a financed buyer with a low appraisal to take a hike and go in search of a cash buyer who isn’t protected by an appraisal.)
Here we delve into the gray areas of real estate – is there an issue with a buyer offering a higher price and counting on the appraiser to save them? To my mind, not if the buyer is committed to purchasing the home if the appraisal hits the number. They may have hoped for better, it didn’t happen and they move on.
Now, if a buyer to their mind overbids only to find the appraiser agrees with their price and then they cancel, that’s a touch more problematic. In this case you’re not so much looking to buy as to get away with something … sort of like the loser with the girlfriend who stayed on The Bachelorette to promote his CD. Others fell by the wayside for a guy who had no plans of being there at the end.
(Another Bachelorette reference? Hey, it IS Monday after all.)
What do I advise? Decide what a home is worth. Decide what you’re willing to pay. And make your offer with that information tucked in the back of your mind. If you’re going to overbid to get a home, make sure you’re comfortable with an appraiser and a seller calling your bluff.
It does happen.
[tags]Phoenix real estate[/tags]