I had a similar experience years ago when I was selling a home. I stayed firm with my price and they paid their original offered price. However, if you do not want to loose these buyers, maybe renegotiate somewhere in the middle? Ultimately, only you can decide if moving on is worth the financial loss.

We offered to meet in the middle at 416, they said they are not paying a penny over appraised value. I'm just trying to see if I will run into the same situation with the next buyer and what are the chances of selling above appraised value.

Can you get another appraisal? You might have to pay for it, but the result should help you decide what to do.

This is a bit off to me I live in Canada a bank appraisal here is bare bones as if you took everything removeable and has no bearing on sale price since this is not a bank repossession I don’t think. I have to say not familiar with US mortgage/ banking /

We could get another appraisal, however there is no guarantee that her lender will accept/review another appraisal AND the houses in our subdivision have sold for $140-$155 per sq ft. Our house appraised at $163 which is above average however our house has more and nicer upgrades than the other houses I reviewed and I also feel it may be unlikely that another appraisal will go much higher. We need it to be at $171 sq ft to meet the asking price.

In the US, each mortgage needs to have an appraisal. The appraisal dictates the amount the bank is willing to lend for the home, on top of that the majority of mortgages have a contingency that the buyer can back out of the contract if the house does not appraise for the selling price.

We had a similar experience as a seller on a 1950's house we renovated with the purpose of reselling. It turned out to be the nicest house in the neighborhood, relative to finishes and updates. We had three immediate offers, one slightly over our asking price. However, the house did not appraise for that and since the purchasers had to get a mortgage, we decided to take the appraised price (still very good for us) and ask for a very fast closing date which we got.

If you are still making money at the appraisal and want to leave, take the offer. Unless cash buyers are common in your area (your realtor will know), you will have to deal with an appraisal and a buyer who needs a mortgage. How much do houses appreciate in your area annually? That will give you a good idea of how much you can expect your house to appreciate by the spring, If it's not much, then I'd take the offer and make it "as is" with no contribution or negotiation for other things the inspection might show.

You can also ask your realtor to take a percentage less on their listing fee. After all sounds like the person didn't really know the market well to set the price and for a realtor, a bird in hand buyer is worth a percentage point. That's what our realtor offered to do (his idea, not ours) to make our experience a win win for everyone.

Appraisers don't give much value for updates as everyone's update will be yesterday's news midway through a 30 year mortgage.

Another road block your buyers may run into is getting a bank to approve a mortgage over on appraisal. When I tried to purchase a home in Detroit in 2017, every home that I had on offer accepted on didn’t appraise to the offer and I couldn’t get approved for a mortgage. Now as you likely understand living here, buying in op the city limits versus buying in the suburbs are two entirely different ballgames with factors not common in many metro areas. I ended up purchasing just outside of the city limit in Grosse Pointe Park and had no problem with appraisals at all. Just something else to think about at the home appraising under price.

Yeah, banks will never approve a mortgage over appraised value so the buyer needs to come up with the difference in cash. Hence my question of how common are cash offers and how many buyers would actually be willing to put up the extra cash. I'm also wondering how common is a clause on an offer that says the buyer will pay a certain amount over appraised value if the home does not appraise for the full amount.

It is not common for buyers to pay above the appraisal because it is risky for them if they have to sell in the next few years. Cash offers are more common for fixers, not homes for someone wanting to live in it. You are also coming into the slow season, so a little riskier for you to wait for the right buyer as well. Sounds like you are getting a good price per square foot.

I'm a Realtor and in my area - on the other side of the country from you (Palm Beach county FL) - cash offers are common and paying over appraised value by bringing cash for all or a negotiated portion of the overage is common in this market in my area. But not all buyers have either the capacity to pay over or the desire to pay more than the appraised value. Right now the market is moving upward fast due to lack of inventory. Is that a factor in your neighborhood?

Real estate is local. Your agent will be able to tell you if cash over appraised value is common in your neighborhood or not. It doesn't sound like it from your description so far.

I can tell you that the lender won't accept an appraisal from someone else. The lender is the client, not the buyer and not the seller. The lender orders the appraisal either though an AMC or not. The type of appraisal matters too. And if you have 10 appraisers, you are very likely to get 10 different values. Each appraiser is different, even though he works under the same guidelines.

Is your buyer otherwise a strong buyer? It's possible that there are other buyers for your home that have more cash and appreciate your improvements. It is also true that you don't get 100% nor anywhere close to 100% of your improvement/upgrades when you sell. Sometimes you don't get anything back for cosmetic changes at all. Taking the bird in hand or waiting for another buyer is something you need to decide yourself. Consult your Realtor for neighborhood facts on recent sales.

As to your last question, I have added language to the effect of buyer will pay $X over appraised value when we have a multiple offer situation and it works. But it's not common here. Normally we just negotiate the amount the buyer will pay over appraised value when the appraisal is finished or cancel the sale and find a more suitable buyer, with more cash. This is area specific though.

One more point, I have found that if the LTV is high (think 90% or greater) than the appraisal has a more likely chance of coming in below sales contract price or anywhere near it.

Appraisers will tell you that it has zero effect on the appraised value, but it may have some subliminal effect because I see it often. JME.

RE: How common cash buyers are or those willing to pay over the appraisal price is totally dependent on your area within your area. In my area, central North Carolina, there are a lot of retirees moving here and they have cash but they want certain neighborhoods only. Your realtor will know if you are in one of those neighborhoods.

I live outside of Seattle and cash offers are quite common here, not for flippers, just for regular home buyers. Yes, real estate is just so local...

I’m in Ohio and the real estate market for houses under $300k is on fire right now. No one is building houses in that price range and it’s what most people can afford so they are often getting offers before they are officially on the market. A house near mine is a 1200sq ft ranch that sold for $160k 2 years ago and it sold for $210k last month, $20k over the appraisal price. The buyer paid the extra in cash. I’m hearing that is very common around here at the moment.

You have the most expensive house in the neighborhood. Time to rethink your price. Maybe say, okay to the $406, but "as is".

Usually the best buyer is the first buyer. I made that mistake!

I would wonder if they are taking a loss or if the loss is only on paper. One of the smaller houses in the neighborhood while there have been improvements is over priced for the neighborhood currently on sale.

It's a shame that you didn't secure an independent appraisal before putting your home on the market. If you can wait to sell, you might pull your listing, have it reappraised next Spring, then talk with a realtor. Note however that rarely does a home thats been overly upgraded get their expected return against other "comps".

As for the agent making up the difference there isn't enough money to make up this difference.

The seller is paying a 6% commission out. That gets split 1/2 to the selling office, 1/2 to the buying office. If it is a listing agent working for a broker and a selling agent working for a broker each 1/2 is again split between the broker and agent. It is common for the agent to have to split their commission 50/50 with the broker.

So if you sell your home for $400,000, each of the 4 parties is getting $6,000 ($24,000 split 4 ways).. If the selling agent agrees to drop their fees they have still contracted to pay the buyers agent 3%, so it means that that the new commission paid out by the buyer is 20,000. The buyer's agent still gets $6,000 and the buyer's broker still gets $6,000, leaving $8,000 for the selling broker and selling agent to split.

You also cannot assume that the selling agent gave bad advice. Most realtors pull comps from the MLS - the computer will pick the best matches. The sellers often bulk at the comps and insist their house is worth more because . . .

To survive you have to list houses, so you do what the buyer asks and advise them that if it doesn't sell within x number of days they should lower the price. Over pricing by $20,000 isn't really going to add much to the agent's pocket and for $300.00 in commission they are risking that the house doesn't sell and they lose the listing and earn nothing for the work they put in to trying to sell the house. The only reason you up price that much is to get the listing with the knowledge that any listing will make the phone ring and you get to sell a prospective buyer a home.

Thanks for all your responses, to address some of them:

1. Our realtor is getting 1% commission that we initially agreed upon so we can't ask him for anything. The price of the house was set by us and I researched the sales and looked at a number of houses/pictures/tours to determine the price. The realtor agreed with the price but did tell us that it will probably not appraise...

2. We do not have the most expensive house in the neighborhood, the houses range from 2300-3900 sq ft, ours is 2500 but more updated than others. It is more expensive by sq ft, however recent sales were houses that were not updated.

3. I'm not sure what an independent appraisal prior to the sale would have done for us? Appraisals are not uniform and would be a good indication of the sales price but doesn't mean that the next appraisal won't come in 5K higher/lower. Even if the initial appraisal came in at 406 we would have still listed the house higher to account for possible negotiations/inspection reductions

4. I did request and review the appraisal carefully. I looked at all 7 comps on the appraisal and found pictures for each one. They do mention that they put the most weight on the comps in your immediate subdivision. They also have seven levels of conditions for each house however a house with a 25 year old granite kitchen was in the same level of condition as our house (attaching pictures for comparison). I don't think that's fair and it interferes with the market value but that's just my opinion.

Maybe my situations was different. We listed our house and got an offer close to our asking price. This was in a suburb outside NYC. The appraisal came in $50,000 lower. I spoke to the appraiser (I was present) who said he was never in our area, he was from upstate NY. When his appraisal came in, I contacted the bank and demanded they send a appraiser from our area.

They did, and the appraiser appraised the price above what we were asking. We got our price.

I would ask whether you spoke to the appraiser? Was he from your area? If not and was not familiar with prices in your neighborhood (as ours was not), try calling the bank the buyer was using.

I paid for another appraisal and it worked.

Might be worth your trouble.

Jane

Mike, I feel for you. I understand that you thought your home was really a lot better than the other homes in your neighborhood, but you got good advice prior to listing and chose to ignore your realtor.

I don't know how old you are, but many of us lived through the housing bubble and mortgage crisis, when banks would appraise at whatever price was offered. Then it all came crumbling down. It isn't going to happen again. Reality is that your home is worth what the neighborhood demands.

I advise people all the time not to sink too much money in a home that they don't intend to stay in long enough to enjoy their upgrades, because you can expect to lose 1/2 of whatever you paid for upgrades when you sell and the rest is a gift to the next owner.

Right now, in many parts of the country, we have low inventory and low interest rates and it is pushing the sales prices up, but after the election and the Covid crises ends the interest rates will go back up and thing will normalize. If things normalize before you sell you likely will not get $18,500 over the high end of the comps. Asking for $40,000 over the high end comps was truly pie in the sky dreaming.

The fact that you had 8 additional showings and no offers shows you that most thought you were asking too much and you lucked out that someone loved your home and was desperate to get your house - might have lost out on a few others, and they came in high. The bank doesn't appraise based on seller or buyer desperation.

I have sympathy for your situation and can see that you made wonderful improvements to your home. I also understand how appraisals work and see the disparity between what you spent vs the value the appraiser assigns to your improvements.

However, you’re stuck (unless a cash buyer shows up) because Your. House. Won’t. Appraise. Is it worth it for you to wait it out for a cash buyer? Or cut your losses and go?

Insert the infamous comment - “do you feel lucky?”

There is a saying by those well experienced in real estate ... “your first offer is almost always your best offer”. It’s really true unless you happen to live in a very high demand area where buyers get into bidding wars, but that’s dependent upon location, availability, mortgage rates, etc.

Looking at the two kitchens posted, I cannot tell which is the 25 year old granite kitchen; to my eye either one could have been updated any time in the last 20 years. When we refinanced our house before COVID-19 got a foothold, that appraiser marked our kitchen as being new but it was redone by the previous owners about 18 years ago and I find it very dated looking with cathedral doors and light floor tiles with dark grout.

It sounds really disappointing for you that your home didn't appraise. However it could indicate either it's over-improved or perhaps you're not objective... if your agent told you it might not appraise why did you still set a higher price?

My friends walked from a home they really loved because it wouldn't appraise and the seller wouldn't budge--California capital area in the last couple years. They found a nicer, larger home that did appraise and bought that. I watched their original choice home sit for another several months, go pending, then back on market, and when it finally sold it was listed as sold at the price my friends bank had appraised it.

Good luck, unless your home is incredibly special--not just to you but to your buyer pool--and you connect with a buyer who thinks it's special, I think most people are making prudent choices and not paying over appraisal value because I suspect most buyers don't want to feel like they got taken for a ride.

ETA --> now that I see the kitchens on a bigger screen, I'm guessing the light wood kitchen is older. However their choices are actually rather mod/glam/contemporary and the kitchen doesn't really have a strong "dated" vibe to me.

We set the higher price hoping it would appraise and you don't want to set the price at the appraisal price because than you have no room for negotiations, unless you plan to sell for asking price and will not take anything down during inspection (which inevitable will always find something).

I would strongly disagree on the kitchen comments. The white laminate kitchen is out of date, not just the style, but laminate kitchens haven't been produced in the last 20-25 years. If you zoom in it should be pretty apparent.

As a retired appraiser, I would examine the appraisal, if available. I would look to see if any of the supporting properties are pending sales. A pending sale can't be used for final valuation. If the pending sale closes before the subject closes and increases the valuation, it can be substituted for one of the other lower comparable properties in determining revised final valuation. The stars rarely align. I doubt a new appraisal will get you the 5% increase that you need. It's too big a gap to close.

There is a valuation lag as home values rise. There is also a valuation lag as home values decline, too. Your home may well be worth the extra 5%. But, we can't find data to support it. Bankers and the law require the data. They just don't take our word for it. A condition adjustment just won't skew things far enough in your favor, either.

As an experienced consumer, if there is a back up offer, you can tell the buyer to pound sand. But, you know the top of the market as of this date. So does the buyer. You offered a reduction to make the deal happen. It just wasn't enough of a reduction for the buyer. The buyer is refusing to pay more. You have to roll the bones and decide if the bird in hand is worth it to you. Usually, it is. I would insist on a short closing with no repairs, financing assistance or further financing accommodations if you accept the contract. Depending on the type of financing, the buyer may not have any more cash to throw on the table. They already be maxed out.

Once I had a personal realtor tell me that sales negotiation was like fishing. You've got a live one not just nibbling, it's biting. You need to set the hook. Otherwise, you have to move on to the next fish.

Your realtor should have advised you to keep the property active in the market, continue to show and accept backup offers. Especially if the realtor was concerned about valuation. They didn't do this and it bit you. I'd advise setting that hook and reeling the buyer in.

I would agree with homechef59. Some home buyers are pre-qualified, and not pre-approved, or they change their mind about the downpayment (wanting to decrease it by thousands) at the closing, causing a delay as numbers are reworked. Others want to purchase a large amount of furnishings for their new house, only to negatively affect their credit rating and the amount the bank will finally loan the buyers. Sellers have to be prepared for every possible contingency (in advance), in this current market. It's true that over improving your home in a neighborhood where others did not will rarely benefit a seller. If it made you happier for the years in which you lived there, it may be all that you can ask.

Lots of interesting advice. The old saying is true - your home is only worth what someone is willing to pay for it. We recently had our house appraised to re-fi & I asked the guy what we could do to increase the value, his response kind of shocked me, he basically said: not much b/c everything was nice, even though it wasn't brand new or high end. his only suggestion was turning the basement into livable space for extra square footage b/c renovated kitchens/baths didn't have a big impact on his end. That sort of sounds like where you are. Tough decision, but take your personal feelings out of the equation & keep it 100% business. If you're ready to move on then sell. Good luck!

@PN _Bos - I have shared this link to an annual renovation survey quite often - it is an eye opener for many.

https://www.remodeling.hw.net/cost-vs-value/2020/

Jennifer Hogan, loved the unreliable eye and that renovation survey really was an eye opener!

Thank you all for great advice!!! It's interesting to hear advice from realtors and appraisers as well as sellers like ourselves.

It's an interesting survey, although the percentages seem reasonable and not really surprising. I also believe the value of each part of the house will depend on individuals. I personally do not find bathroom remodels very valuable as I spend the least amount of time there during the day, someone else may think otherwise. :)

homechef59, we did keep it on the market after the offer and were accepting backup offers but not a single person looked at it and the showings we had scheduled for the next few days were all cancelled as soon as the status changed to 'Pending accepting backup offers'. I guess people just don't want to deal with a backup offer given the low chance of it going through...

We decided to take the offer and not relist.

I figured that we may not get the offer at full asking price, we may get a contingent offer (the current one is not), there is a low chance that someone would be willing to pay over appraised value and a low chance of getting a cash offer. Based on all of that I figured that while there is a chance of getting a better deal, the likelihood of it is small and we may only be winning a few thousand while taking a risk of relisting and possibly settling for less.

Thanks!

Thanks for letting us know Mike. Sometimes people get their panties all in a wad, get huffy with those offering well thought-out advice, and go away never to be heard from again.

I think you made a very wise decision.

Here's to hoping for a smooth sailing to closing from here.

You did make a wise decision. The first offer is usually - not always, but usually - the best offer. No one will pay over appraised price unless the house is a rare architectural masterpiece (and then it usually appraises anyway).

Good decision. A bird in hand is worth two in the bush. Even though the market is hot, it's going to cool naturally with the end of the year approaching. Enjoy your new adventure, whatever that may be.