It’s Just an Offer, Not an Insult
Sometimes a buyer’s offer isn’t received so well. Seller’s may still have in their mind that their home is not only worth what they paid for it, but even more. If it’s been said once, it’s been said a million times. A home has to appraise to close sale when there is a mortgage involved. The bank doesn’t care what the seller originally paid for their Bonita Springs real estate or even that they want to “break even”. The real estate has to be priced right to attract buyers and contracted right in order to appraise and close sale.
Recently, I helped a buyer place an offer on a Bonita Springs home. The offer was considerably less than the asking price of the home. Did the buyer make the offer to hurt the Seller’s feelings? Did the buyer think that just because the market is better for buyers they should “low ball” the seller? The answer to both questions is no.
The Buyer and I looked at dozens of homes in Bonita Springs and Estero and when the buyer decided to place an offer on the home we did our research. We found out what “like kind” properties had recently sold in the area, what their closed sale price was and what upgrades or features of significance the homes had and created a comparative market analysis. What we found was that even if this buyer fell head over heals in love with this home and made a full price offer it would likely not appraise and the lender funding would not be approved. There was more than one closed sale within the last 30 days to support this notion.
For example, if a buyer was getting an 80% loan to value mortgage on a $500,000 home the lender/bank will loan the amount of 80% of what the home appraises for ($400,000 is 80% of the value of $500,000). If the home only appraised for $400,000 but was contracted for sale for $500,000 the bank/lender would only lend $320,000, which is 80% of the appraisal value. Somewhere, someone has to make up the difference of $100,000. This is where things get wobbly. Contracts fall apart when low appraisals in contrast to the contracted price come in. In a buyers market a seller can reduce their price to the appraised value, if they so choose, to keep the deal together. A buyer, if so inclined, could bring the addition funds to closing if they so desired, but this isn’t likely.
For the record, appraisers adhere to a code of conduct, read also: strict guidelines. Manipulating or influencing the appraiser or appraisal process isn’t permitted. Underwriting procedures are more stringent than ever. The banks are being very careful with their money and lending guidelines.
Sometimes there is no way to salvage large spreads between contract price and appraisal price and everyone goes their separate ways. In an area with a couple of years of inventory, most buyers choose to start shopping for a home more appropriately priced to save themselves the heart ache of falling in love with a home that might not close due to appraisal issues.
If you’re thinking of placing an offer on Bonita Springs real estate, do your homework.
- Find out the recent sales in the area.
- Find out the current like-kind listings in the area.
- Calculate the absorption rates for the neighborhood.
- Get a CMA – a market analysis to verify a reasonable value for the subject property.