Getting an appraisal has been a standard of the home sale industry for many years. Lenders have required it for most loan types thru the years, and that is still the case. Additionally, buyers feel more comfortable knowing that an unbiased professional agrees with the price they are willing to pay. So what has changed?
The Game, that’s what. If this was a normal market, we would not be talking about the merits of an appraisal, it would continue as a standard part of the sale. This is no ordinary market. Some homes are bitterly fought for. Buyers strive to increase their odds of getting the home they want, and are looking at any angle beyond going up endlessly on price. Escalation clauses, where the offer states they will raise their price to beat any others? Passe’. If a home draws 5 offers, 2 may have an escalation clause. Sellers don’t want to go back and forth on multiple offers, just give your best price. Too many cases of buyers getting cold feet on this and backing out. Or worse, the buyers bid extremely high but insist on the appraisal rider, expect it coming in low and returning to a reasonable price – bingo.
Without getting into all the ways to sweeten your offer (contact me directly for that), removing the appraisal condition is a big one today, as sellers and agents are becoming more leery about ways buyers can terminate the sale. The lender may still require it, but you control the contract conditions. Inspections are still the number one cause of termination, but not many buyers are willing to buy as-is, and the seller has some say by agreeing to repairs. After that is financing, although in the mid-to-upper price ranges, a low appraisal will kill the deal more often than lender denial. If you as the buyer have the ability to overcome a low appraisal, e.g. come up with more down payment/have enough down already/agree to pay PMI/pay more PMI – and you want to make a real difference in your offer, consider removing the appraisal rider. If you have 30% down payment or more, this can make for an easy decision. If less, a bit harder as this can have ramifications beyond just down payment. If you have minimum down, I would NOT recommend this. Either way, having an experienced Realtor representing you is invaluable here. He/she will have run a price analysis to make you understand pricing, values, and the pros vs cons. You may even realize you are over market value but proceed anyway.
Not every home purchase offer goes thru this, in fact less than half of homes sold in St Louis end up in competition. But you wouldn’t know that in some of our hottest areas like ranches from $150,000 to $400,000 in Lindbergh schools, Kirkwood and Manchester. It pays to be prepared and discuss the possibilities, especially if you have lost out on a sale or two.
Gary Hoeferkamp, Broker - Owner of Hoeferkamp Real Estate 