Short Sale List Price vs. Appraisal Value
The biggest issues both sellers and buyers have when dealing with and understanding the intricacies of short sales is how the appraisal process can effect the transaction.
Recently a home seller requested a price opinion on a home that would be a short sale. The home owner felt the price quoted by one of the interviewed real estate agents was particularly low. Even though the home was being sold short, at the quoted price they really felt that they would be “giving it away”.
The home seller was correct in being concerned about listing the home at too low of a price. While a lower list price will materialize a faster contract, that contract needs to also endure the appraisal process in order to close sale.
One of the many gears in the short sale machine is that darned appraisal. The lender being asked to forgive the homeowners debt is usually taking a heck of a hit and wants to be sure that the home is being sold for its current market value. The majority of the time the lender or loan servicer had nothing to do with determining the list price and, of course, the list price of the property doesn’t indicate its value.
The appraisal is a means to vet mispriced or “drama priced” properties simply to get an offer. It also flushes out schemes to game the system for the purpose generating sweetheart deals for friends or family members or for the homeowners themselves in a buy back scheme. Surely you aren’t surprised that people are doing that, are you?
The fact of the matter is that you could paper the walls of Mall of America with failed short sale purchase offers that died when the bank or investor countered the offer over list price. Buyers get a little miffed and bail out when they feel they “offered full price” only to be counter offered after months of waiting. The buyer trots off into the sunset and the home owner starts over with a new and improved list price to support the appraisal.
So what’s a seller to do when they’re pricing their short sale real estate? First, they have to start out as close to the estimated value of the property as possible. Second, they have to be mindful of standing inventory and what the absorption rate is for the community. What is or is not on the market at the time, the pending sales about to close and the rate properties are selling at is going to have an effect on the sale, appraisal and market value.
The homeowner who was questioning the proposed list price being too low was located in a community with about six to seven months of inventory, which is essentially a balanced market. The proposed list price was about twenty percent under recent closed sales which were recorded within the last thirty days.
Whether that home owner lists twenty percent below market value or for one dollar the end result would, in all probability, be the same. The list price is wrong and the bank will counter the offer when the appraisal comes in.
The end result is that the less than committed buyer ends up walking and that contract ends up decking the halls of Mall of America or at the bottom of the bird cage, right beside this little work of art.
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Real Life in Bonita Springs is a project by Chris Griffith dedicated to writing useful blog posts for consumers about the Bonita Springs, Florida area. Find out what it is really like to live in Bonita Springs, Florida by reading about our fair city. You’ll get the latest in local real estate information, Bonita Springs real estate market reports and a little bit of humor. If you have topic ideas, feel free to request a story about the idea, after all, this site is just for you.
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Comments
Tags: appraisal, contract, lender, market value, real estate, short sale, value
Great description of short sale pricing reality. My wife and I recently purchased a Bonita short sale and were fortunate that the asking price was close to the appraised price. The firat house we bid on was a pricing bait by the owner/agent. The agent never disclosed that he was the owner. We now realize that he was trying to lure people into a bidding contest by pricing low. He never submitted our bid to the bank as he knew in advance that it was below the bank’s minimum price. We a couple of months waiting for a deal that never was as well as airline and hotel money to inspect the house. As the old saying goes…”Buyer Beware!”.
Thanks for sharing your insight as a consumer, Fred. There aren’t many places that other folks can hear about other buyers experiences.
My wife and I are having “buyers let-down”. We traveled from Atlanta to Port St Lucie, FL to buy a home, cash. We spent 5 days searching and found a house we liked. The list price $95,000. In Atlanta, homes are selling for very low prices, so we offered $88,000 cash. We knew it was low but expected a counter that we would accept. The counter was $107,000, $12,000 above the list price. WHAT THE ####. Felt like the old “bait and switch” trick. We spent time and money on this trip and are angry about it. Agents should not be allowed to use this tactic. The agent would not even give us a real counter-offer contract, just an e-mail number that I no longer trust. It is creating a high level of distrust in the whole Florida market. I don’t think we will spend the money to try another purchase in this ripoff real estate market.
HI Ray
Thanks for sharing your experience. Our market on the west coast is stable in the Bonita/Estero area so we aren’t having the issue as much. I have had one contract with a $5K above list offer but otherwise they pricing is now matching the value since the inventory has dwindled. I’d suggest continuing a search but before placing the offer, have your agent calculate an absorption rate for the area in which your buying to determine the inventory rate. Also, get a thorough CMA to make sure the home is priced properly. Good luck.