How Buyers Are Turning the Appraisal Game to Their Favor

avatarthumbnail.jpgLife 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]

About Jonathan

Jonathan Dalton is a 30-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.

  • Mark

    Pardon my ignorance Jonathan, but in AZ, how does this ‘appraisal process’ work? Does an appraisal occur on all transactions? Or is this ball entirely in the purchaser’s court?

    If so, what is the window for an appraisal to take place (the 10-day inspection period?) and what’s the ballpark costs involved for ordering an appraisal? And of course any other info you can ‘kitchen sink’ me/us with is greatly appreciated!

    Just trying my best to be an informed consumer 😉 _ Mark

    PS: re: the Bachelor… I would never watch that show… but if I did… I woulda loved to have seen Jillian smash a guitar over Wes’ head for a little poetic justice! And as if that kinda behavior is going to help him sell records_ oh waita second_ bad boy musician…. he might be onto somethin’ 😉

  • He’s not a bad boy. He’s just an a-hole.

    As to the questions … generally speaking, appraisals only are mandatory on financed purchases because the lenders require them. On a cash deal, the appraisal isn’t mandated.

    The Arizona contract contains the appraisal contingency in the financing section, which is skipped if the purchase is for cash. Unless the agent puts it back into the contract in the free-form section.

    There’s no set time frame for when the appraisal has to be done; after the buyer receives notice of the appraised value (and there has been a debate whether the notice has to be in writing) he has five days to notify the seller if the appraisal didn’t hit the number.

    Figure around $350 or so for an appraisal.

    Does that help?

  • Mark

    It is very helpful to know the difference between an A-hole and a bad boy… am already cautioning my 2 and half year old girl on bad boys and will use this as part of the advanced cirriculum!

    Oh… the the other stuff is indeed helful as well 😉

    Thanks_ Mark

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