Home buying question: pay more than appraised value?

by Idéfix Fri Nov 16, 2012 12:20 pm

We recently got into contract on a house, and the appraisal report just came back. The appraised value is $25k lower than the offer we made. We are going to negotiate with the seller based on this report, but I am trying to figure out if it makes sense to pay anything more than the appraised value. The market here is quite competitive right now, and prices have been rising. We were looking for over a year before we landed on this house. This house had over a dozen offers, at least one of them higher than our offer (according to the seller's agent). On the one hand I am worried about walking away because of a difference in value of less than 5%, and on the other, I am not sure I want to overpay. Does anyone here have experience with this situation when appraised value is lower than offer price? Any tips or suggestions? Thanks.

by Guest Fri Nov 16, 2012 12:25 pm

discuss this with some competent real estate agent.

by Sandee2020 Fri Nov 16, 2012 12:27 pm

Unless you really, desperately want this property no use in paying more than the appraised value. Offer the appraised value and take a chance. The realtor may be using his sales tactics.

by Propagandhi711 Fri Nov 16, 2012 12:30 pm

panini press wrote:We recently got into contract on a house, and the appraisal report just came back. The appraised value is $25k lower than the offer we made. We are going to negotiate with the seller based on this report, but I am trying to figure out if it makes sense to pay anything more than the appraised value. The market here is quite competitive right now, and prices have been rising. We were looking for over a year before we landed on this house. This house had over a dozen offers, at least one of them higher than our offer (according to the seller's agent). On the one hand I am worried about walking away because of a difference in value of less than 5%, and on the other, I am not sure I want to overpay. Does anyone here have experience with this situation when appraised value is lower than offer price? Any tips or suggestions? Thanks.

does the actual sq footage match that put in the appraisal report? in some cases, the homeowner changes the sq footage but wont report to county authorities so their RE taxes are low...

by Jeremiah Mburuburu Fri Nov 16, 2012 12:41 pm

panini press wrote:We recently got into contract on a house, and the appraisal report just came back. The appraised value is $25k lower than the offer we made. We are going to negotiate with the seller based on this report, but I am trying to figure out if it makes sense to pay anything more than the appraised value. The market here is quite competitive right now, and prices have been rising. We were looking for over a year before we landed on this house. This house had over a dozen offers, at least one of them higher than our offer (according to the seller's agent). On the one hand I am worried about walking away because of a difference in value of less than 5%, and on the other, I am not sure I want to overpay. Does anyone here have experience with this situation when appraised value is lower than offer price? Any tips or suggestions? Thanks.

should we now expect a question from you on:

1. shopping for and cooking fish for the bengali - repeat, bengali - wife?

2. moving to nyc so that the bengali - repeat, bengali - wife can do graduate work at columbia university?

3. how the bengali - repeat, bengali - wife should converse on the phone with her husband's grandmother in guNTur in the glut tribe's language?

by southindian Fri Nov 16, 2012 12:42 pm

panini press wrote:We recently got into contract on a house, and the appraisal report just came back. The appraised value is $25k lower than the offer we made. We are going to negotiate with the seller based on this report, but I am trying to figure out if it makes sense to pay anything more than the appraised value. The market here is quite competitive right now, and prices have been rising. We were looking for over a year before we landed on this house. This house had over a dozen offers, at least one of them higher than our offer (according to the seller's agent). On the one hand I am worried about walking away because of a difference in value of less than 5%, and on the other, I am not sure I want to overpay. Does anyone here have experience with this situation when appraised value is lower than offer price? Any tips or suggestions? Thanks.

To put it simply, "Your house is worth less than what you are offering, given the current market and neighborhood conditions".

The property value may appreciate with market and neighborhood conditions, but is worth less today. Keep in mind the appraisal is done in current conditions and you should be paying according to property values today.

25K difference is way too much of a difference and the seller is living in a bubble.

by MaxEntropy_Man Fri Nov 16, 2012 12:53 pm

what is it in % terms? appraising is not an exact science. +/- 5-10% is acceptable depending on the market you are in. also do your own due diligence on recently sold homes on redfin and zillow. i have found appraisers to be often clueless about very local conditions. some of them don't even have data on transactions that did not go through the MLS (FSBO sales). i had to pull down records from the county deeds office and send it to them on one occasion when i was refinancing! gits.

by MaxEntropy_Man Fri Nov 16, 2012 1:00 pm

Rashmun wrote:discuss this with some competent real estate agent.

also known as crooks. when it comes to real estate transactions i have found that doing a prodigious amount of research on my own using the internet, keeping a running excel spread sheet, hitting the road going to multiple open houses and doing comparisons on a room by room, feature by feature basis is the only safe route. there is no substitute for it. take inputs, but believe nobody.

by Guest Fri Nov 16, 2012 1:20 pm

Did you not check the county records for the appraised value and also the zillow's estimated value before you bid for the house? You should've had an idea on how much the house is worth. no?

by nevada Fri Nov 16, 2012 1:29 pm

Bay area rents are going through the roof. You will throw away atleast 1500-2000 a month on rent. If you live in this house for about 4 years you will have saved a lot of money.

by Vakavaka Pakapaka Fri Nov 16, 2012 1:41 pm

Treat apprised value as a guide. Allow some slack. Don't give much value to what the seller's agent says about other offers. If you are sure that this is the house for you, paying some 10-15 K extra is alright (considering that prices are going up).

If you think that you can find a better house if this deal collapses, then argue with the seller about the appraised value. If you succeed, you'll be happy if not, just move on.

Ammaa kaavaali buvvaa kavaali anukonte, atu ammaa itu buvvaa migalavu!

by Hellsangel Fri Nov 16, 2012 2:32 pm

It boils down to this. How badly do you want the house and can you pay the 25k out of pocket?

by Idéfix Fri Nov 16, 2012 2:38 pm

Propagandhi711 wrote:
panini press wrote:We recently got into contract on a house, and the appraisal report just came back. The appraised value is $25k lower than the offer we made. We are going to negotiate with the seller based on this report, but I am trying to figure out if it makes sense to pay anything more than the appraised value. The market here is quite competitive right now, and prices have been rising. We were looking for over a year before we landed on this house. This house had over a dozen offers, at least one of them higher than our offer (according to the seller's agent). On the one hand I am worried about walking away because of a difference in value of less than 5%, and on the other, I am not sure I want to overpay. Does anyone here have experience with this situation when appraised value is lower than offer price? Any tips or suggestions? Thanks.

does the actual sq footage match that put in the appraisal report? in some cases, the homeowner changes the sq footage but wont report to county authorities so their RE taxes are low...

The actual sq footage matches the declared sq footage. But the house has expansion potential because the lot is bigger than usual, and we value that potential -- my understanding is that the appraisal does not really account for the lot size.

by Idéfix Fri Nov 16, 2012 2:38 pm

Sandee2020 wrote:Unless you really, desperately want this property no use in paying more than the appraised value. Offer the appraised value and take a chance. The realtor may be using his sales tactics.

Yeah, I will go back and offer appraised value -- and negotiate from there as needed.

by Idéfix Fri Nov 16, 2012 2:39 pm

Jeremiah Mburuburu wrote:
panini press wrote:We recently got into contract on a house, and the appraisal report just came back. The appraised value is $25k lower than the offer we made. We are going to negotiate with the seller based on this report, but I am trying to figure out if it makes sense to pay anything more than the appraised value. The market here is quite competitive right now, and prices have been rising. We were looking for over a year before we landed on this house. This house had over a dozen offers, at least one of them higher than our offer (according to the seller's agent). On the one hand I am worried about walking away because of a difference in value of less than 5%, and on the other, I am not sure I want to overpay. Does anyone here have experience with this situation when appraised value is lower than offer price? Any tips or suggestions? Thanks.

should we now expect a question from you on:

1. shopping for and cooking fish for the bengali - repeat, bengali - wife?

2. moving to nyc so that the bengali - repeat, bengali - wife can do graduate work at columbia university?

3. how the bengali - repeat, bengali - wife should converse on the phone with her husband's grandmother in guNTur in the glut tribe's language?

No.

by Idéfix Fri Nov 16, 2012 2:40 pm

southindian wrote:
panini press wrote:We recently got into contract on a house, and the appraisal report just came back. The appraised value is $25k lower than the offer we made. We are going to negotiate with the seller based on this report, but I am trying to figure out if it makes sense to pay anything more than the appraised value. The market here is quite competitive right now, and prices have been rising. We were looking for over a year before we landed on this house. This house had over a dozen offers, at least one of them higher than our offer (according to the seller's agent). On the one hand I am worried about walking away because of a difference in value of less than 5%, and on the other, I am not sure I want to overpay. Does anyone here have experience with this situation when appraised value is lower than offer price? Any tips or suggestions? Thanks.

To put it simply, "Your house is worth less than what you are offering, given the current market and neighborhood conditions".

The property value may appreciate with market and neighborhood conditions, but is worth less today. Keep in mind the appraisal is done in current conditions and you should be paying according to property values today.

25K difference is way too much of a difference and the seller is living in a bubble.

Thing is, we offered about 30% more than the seller's list price. So we are living in that bubble too Smile

. We both really like the house, and it's in a great location (for us).

by Idéfix Fri Nov 16, 2012 2:41 pm

MaxEntropy_Man wrote:what is it in % terms? appraising is not an exact science. +/- 5-10% is acceptable depending on the market you are in. also do your own due diligence on recently sold homes on redfin and zillow. i have found appraisers to be often clueless about very local conditions. some of them don't even have data on transactions that did not go through the MLS (FSBO sales). i had to pull down records from the county deeds office and send it to them on one occasion when i was refinancing! gits.

Good point. The difference between appraised value and my offer price is less than 4%. When I wrote the original offer, I had analyzed the comps on redfin, and felt I could justify my offer price. Will look into county records now.

by Idéfix Fri Nov 16, 2012 2:42 pm

kinnera wrote:Did you not check the county records for the appraised value and also the zillow's estimated value before you bid for the house? You should've had an idea on how much the house is worth. no?

I thought I had an idea of how much it is worth to us... which is what we offered originally. But the appraised value came below that number.

by Idéfix Fri Nov 16, 2012 2:44 pm

nevada wrote:Bay area rents are going through the roof. You will throw away atleast 1500-2000 a month on rent. If you live in this house for about 4 years you will have saved a lot of money.

Yeah, I am tired of paying rent, and I am tired of spending every weekend going to open houses. Given that it is less than 5% off, I guess I will just bite the bullet and go ahead. Perhaps the seller will agree to eat some of the $25k gap, and I will foot the rest.

by Idéfix Fri Nov 16, 2012 2:45 pm

Vakavaka Pakapaka wrote:Treat apprised value as a guide. Allow some slack. Don't give much value to what the seller's agent says about other offers. If you are sure that this is the house for you, paying some 10-15 K extra is alright (considering that prices are going up).

If you think that you can find a better house if this deal collapses, then argue with the seller about the appraised value. If you succeed, you'll be happy if not, just move on.

Ammaa kaavaali buvvaa kavaali anukonte, atu ammaa itu buvvaa migalavu!

LOL. Yes, the more I think about it, the more convinced I am that this is it. I don't think I'll really find another house within my budget that matches our needs and wants so closely.

by MaxEntropy_Man Fri Nov 16, 2012 2:47 pm

have you already done a home inspection? remember you should use the results of the home inspection as a negotiating tool as well. and make sure you hire an inspector who is well known in the community as an a-hole (from the seller's standpoint).

by Idéfix Fri Nov 16, 2012 2:50 pm

MaxEntropy_Man wrote:have you already done a home inspection? remember you should use the results of the home inspection as a negotiating tool as well. and make sure you hire an inspector who is well known in the community as an a-hole (from the seller's standpoint).

Yes, I have the inspection report and am planning to use it.

by MaxEntropy_Man Fri Nov 16, 2012 3:00 pm

+4% is not something i'd sweat too much over especially in the bay area as long as you like the home and you don't have too much to do after you move in. you could however try to use the appraisal and the home inspection together and knock the price down a bit. are there serious competitors are you guys the only game in town? that's another thing you want to think about.

by Idéfix Fri Nov 16, 2012 3:06 pm

MaxEntropy_Man wrote:+4% is not something i'd sweat too much over especially in the bay area as long as you like the home and you don't have too much to do after you move in. you could however try to use the appraisal and the home inspection together and knock the price down a bit. are there serious competitors are you guys the only game in town? that's another thing you want to think about.

There's a lot of competition. We were told that there were 17 offers on the house, with two of them slightly higher than what we offered. I am not sure how much I should believe what the seller's agent tells my agent, but that's one data point. Another is that when I went to the city planning office, the guy there told me three other people came to talk to him about the same house. So there is definitely some interest in the house.

by Bittu Fri Nov 16, 2012 5:22 pm

Appraised value is a guideline but the bottom line is dictated by the market. What is "appraised value" anyway? The lenders look at recent sale prices of comparable properties in the same neighborhood and come up with a number.

It's quite common in sought-after areas for buyers to offer more than asking price. In Palo Alto my SIL was looking at a home where buyers were paying 70-75k more than asking price. I mean, common sense right? Two girls, one cup. One house, twenty buyers. What ya gonna do.

by Kris Sat Nov 17, 2012 12:48 pm

panini press wrote:We recently got into contract on a house, and the appraisal report just came back. The appraised value is $25k lower than the offer we made. We are going to negotiate with the seller based on this report, but I am trying to figure out if it makes sense to pay anything more than the appraised value. The market here is quite competitive right now, and prices have been rising. We were looking for over a year before we landed on this house. This house had over a dozen offers, at least one of them higher than our offer (according to the seller's agent). On the one hand I am worried about walking away because of a difference in value of less than 5%, and on the other, I am not sure I want to overpay. Does anyone here have experience with this situation when appraised value is lower than offer price? Any tips or suggestions? Thanks.

>>>> In the market you are in now, this is fairly commonplace. 25K is easily less than 5% presumably. If your gut feel about the house is good, I wouldn't worry about this aspect. The appraisal values tend to have a lag time in hot markets, so the adjustment will take place with time.

by Idéfix Mon Nov 19, 2012 2:40 pm

Thanks for all the responses. The sellers have accepted a lower offer based on the appraisal report!

by nevada Mon Nov 19, 2012 3:06 pm

Congrats! Enjoy your stay in the new home!

by Sandee2020 Mon Nov 19, 2012 3:31 pm

Good for you! Congrats and best wishes in your new home.

by MaxEntropy_Man Mon Nov 19, 2012 8:31 pm

congratulations! welcome to the money pit.

by Idéfix Mon Nov 19, 2012 8:50 pm

Thanks all... it is time to start packing!

by Guest Mon Nov 19, 2012 9:06 pm

cool, now waiting for the next good news. Very Happy

by Bittu Mon Nov 19, 2012 9:14 pm

congrats panini press! First home is always exciting. Party on you when I visit Palo Alto next.

by Bittu Mon Nov 19, 2012 9:15 pm

wait, Bittu ko kon bulayega party mein....yeh bhi problem hai...

by truthbetold Mon Nov 19, 2012 10:12 pm

PP,
Congrats.

by Marathadi-Saamiyaar Tue Nov 20, 2012 2:06 am

panini press wrote:Thanks for all the responses. The sellers have accepted a lower offer based on the appraisal report!

Great....now you are living the American Dream...

in debt of some 600K...

A proud Ower.

by Guest Tue Nov 20, 2012 9:06 am

panini press wrote:Thanks for all the responses. The sellers have accepted a lower offer based on the appraisal report!

Curious. How low did you go?

by Guest Tue Nov 20, 2012 11:09 am

i suppose i'd be remiss if i did not congratulate you here. congrats!

by Idéfix Tue Nov 20, 2012 11:11 am

Natalia Romanova wrote:
panini press wrote:Thanks for all the responses. The sellers have accepted a lower offer based on the appraisal report!

Curious. How low did you go?

The appraisal was 25k lower than my original offer. We settled on 20k lower than original offer. Basically I pay the same amount down as I would have paid with the original offer.

by Bittu Tue Nov 20, 2012 11:59 am

PP, pix of the house?

by confuzzled dude Tue Nov 20, 2012 12:16 pm

panini press wrote:
Natalia Romanova wrote:
panini press wrote:Thanks for all the responses. The sellers have accepted a lower offer based on the appraisal report!

Curious. How low did you go?
The appraisal was 25k lower than my original offer. We settled on 20k lower than original offer. Basically I pay the same amount down as I would have paid with the original offer.

which means you could still be overpaying Smile

assuming the next offer (if there was one) was less than the list price. Anyway, 10-15k shouldn't be a big deal in the long run. Congratulations!

by southindian Tue Nov 20, 2012 12:18 pm

Bittu wrote:PP, pix of the house?

Bittu, pix of your PP?

by Guest Tue Nov 20, 2012 12:29 pm

southindian wrote:
Bittu wrote:PP, pix of the house?

Bittu, pix of your PP?

Don't ask him, for he may post it. Shocked

But why do you wanna see!

by Hellsangel Tue Nov 20, 2012 12:33 pm

I will post them in the next few days.

by Idéfix Tue Nov 20, 2012 12:50 pm

confuzzled dude wrote:which means you could still be overpaying assuming the next offer (if there was one) was less than the list price. Anyway, 10-15k shouldn't be a big deal in the long run. Congratulations!

Thanks. There were 17 other offers, and two of them matched what I had originally offered. It's a crazy market out here.

by Guest Tue Nov 20, 2012 2:14 pm

Hellsangel wrote:I will post them in the next few days.

Post what. PP's house or...

by southindian Tue Nov 20, 2012 2:21 pm

Natalia Romanova wrote:
southindian wrote:
Bittu wrote:PP, pix of the house?

Bittu, pix of your PP?

Don't ask him, for he may post it.

But why do you wanna see!

No offense, but I recently bought a camera with big zoom lens and need to test on small objects.

...and what's best than asking Bittu to show.

by Guest Tue Nov 20, 2012 2:25 pm

southindian wrote:
Natalia Romanova wrote:
southindian wrote:
Bittu wrote:PP, pix of the house?

Bittu, pix of your PP?

Don't ask him, for he may post it.

But why do you wanna see!

No offense, but I recently bought a camera with big zoom lens and need to test on small objects.

...and what's best than asking Bittu to show.

Do even high schoolers laugh at such pj's these days?

by southindian Tue Nov 20, 2012 2:27 pm

Natalia Romanova wrote:
southindian wrote:
Natalia Romanova wrote:
southindian wrote:
Bittu wrote:PP, pix of the house?

Bittu, pix of your PP?

Don't ask him, for he may post it.

But why do you wanna see!

No offense, but I recently bought a camera with big zoom lens and need to test on small objects.

...and what's best than asking Bittu to show.

Do even high schoolers laugh at such pj's these days?

No all laugh. But some comment/reply. Smile

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