Appraisal Gaps, Inspection Waivers, Oh My!6/20/2022
If you follow the real estate market at all, I’m sure you’ve heard some desperate Buyer stories. You may have a friend who all but gave up their firstborn to get their dream house. It may not even be their dream house, they just wanted A HOUSE.
In order to compete with multiple offers, Buyers are getting creative in their negotiations. I’m going to explain a few of these.
First off, I don’t recommend it. I’m not saying I haven’t suggested it, I’m saying I don’t recommend it. However, with that being said, if you are up against 23534353 other offers on a house that by all accounts appears to be structurally sound, you might consider waiving the inspection to make your offer more attractive to the Seller. By doing this, the Seller can feel more confident about your offer, because it’s one less opportunity for you, the Buyer to “back out” of the agreement.
If you waive the inspection, make sure you have extra reserves (aka “cash”) on hand in the event that something comes up that needs fixed or replaced. Having any kind of handy skills is definitely a bonus.
Waiving Appraisal Contingency
An appraisal is different from an inspection. An appraisal is what the bank thinks your home is worth. A third party is hired to determine this value. If you are getting a loan for the home, the bank will loan you money based on the appraised value. If the value is under the purchase price, the bank will want someone else (you) to cover the difference.
If you waive the appraisal, you’re telling the Seller that you have the money to cover the difference in the appraised value from the purchase price. In other words, you’re going to cover the “appraisal gap”. In order to do this, you will need to show everyone proof that you’re financially able to cover this obligation should the appraisal come in low.
This is happening a lot in this market. Your real estate professional should always give their opinion of value before submitting an offer. A realtor’s opinion of value is not always the same as the appraiser’s. The opinion of value will give you an idea of what the home is worth, and then you can make your own decision if you are willing to come up with more down payment in the event the home does not appraise.
Closing & Possession
Oftentimes, the Seller is more interested in a flexible move-out date. In a lot of cases, they will need the proceeds from the sale of their home before they can buy the next home. It’s overwhelming to have people move in/move out on the same day. The more flexible you are with giving the seller control of the move out date, the better your chances of winning your offer.
Personal property (furniture) should not be a consideration in a purchase. Don’t get hung up over someone else’s pool table or big screens. In other words, don’t ask for their stuff, unless they specifically state that they will leave it. Buy your own. Besides, if you are getting a loan, the bank does not give any value to personal property.
Again, these are just a few points. There are many other ways to put yourself ahead of negotiations. I absolutely feel you should have a real estate professional guide you to put your best foot forward. Realtors have the sense of urgency, knowledge of the market, and expertise to get you into your house. We have ways to protect you, and save you from “giving up your firstborn”. As always, if you have any questions about real estate, give us a call.