It is a crazy time to be buying or selling your home…but is crazy always bad? Well, it depends. Are you buying or selling? Are you a cash buyer or are you getting a loan? Are you offering above asking price or are you low balling it?
In the last month, I keep getting asked the same question from buyers “how much should I offer above asking price?” Similarly, my clients who are selling their homes are telling me they are struggling to choose a buyer because they are receiving multiple offers. Although it would seem like a wonderful problem to have too many buyers, it may backfire. Here’s how.
You found the perfect home, you want it, and you know there’s other sharks in the pond smelling this perfect little property but you beat them to the punch and make an offer (above asking price), and BAM your offer was accepted by the seller. All the stars aligned and you are on your way to a happy ending, as soon as your loan gets approved. Oh, but then the appraisal comes in and the property appraised lower than the offer you made. Now what?
Solution #1: You have the cash, or your family has the cash, and you are happy to bridge the gap between the loan and the purchase price. Since the appraisal is lower than the purchase price, then your lender will request for you to make an even bigger down payment so the lender is protected.
Solution #2: Short term seller financing: You can get creative and fingers crossed your seller has an open mind. If the gap is not great and you only need a few thousand dollars to close, then perhaps the seller is willing to extend you a short-term loan in exchange for a junior lien on the property. I can help you with the paperwork.
Solution #3: Talk to the seller and ask to lower the price. I know that sounds crazy during this market. However, remember that the seller already invested at least 30 days with you and took the property off the market. And believe it or not, some of us would prefer to avoid the roller coaster, and the paperwork, and just get it over with. Again, it may not work, but it is worth the try.
Well, that depends on your situation, the appraisal, etc. Ask the seller if an appraisal was obtained recently and ask for a copy. That way you know exactly what you are getting yourself into. If you are a cash buyer, then the sky is the limit, or your savings account balance. You are not constrained by a loan and can offer whatever you want to pay for the property.
However, if you are seeking a loan, then make sure you can make the down payment to make up for a lower appraised value. Your lender will want to have a cushion in case things go south. If you have the extra funds to make an even bigger down payment, then that will determine how much you should offer above asking price.
Now, with that being said, do you really want to get into a bidding war and purchase a property with a lower appraised value than what you are paying for? I don’t know the answer to that. Only you can answer.
By the same token, it is very frustrating for a seller to spend more than a month working with a buyer only to find out the buyer was unable to obtain financing. So, the same word of caution goes to the sellers. Getting offers above asking price is wonderful, but make sure the buyer will be able to close if the appraisal comes back at a lower amount than the purchase price and the lender requires a greater down payment from the buyer.
If you have any questions about buying or selling your home, let me know.
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