Appraised value: $380,000.
Mortgage amount: $342,000.
Purchase price: $396,000.
Mortgage type: 30-year fixed.
Rate: 4.375 percent, no points.
Backstory: My clients were first-time home buyers and looking in Richmond for a home to accommodate their growing family. Their agent, Felipe Acobes with Better Homes and Gardens Real Estate in Oakland, located a three-bedroom, two-bathroom home that met all of their requirements.
However, the property had its complexities. There was a partially finished garage and a bonus room — both done without any permits — and a significant amount of deferred maintenance. The list price was $399,000, a price that was expected to be overbid.
The buyers offered $428,800, which was accepted. In this competitive market, it is not uncommon for buyers to pay a price that does not discount the existence of non-permitted improvements and defects.
When this happens, the appraised value at times does not justify the purchase price.
In these cases, the buyer may be willing and able to increase their down payment to make up the difference. In this instance, the buyers were already getting gift funds from relatives for their 10 percent down payment and to cover closing costs, so they had little ability to bridge any price/appraisal gap.
Fortunately, Acobes had placed an appraisal contingency into the offer to protect the buyers in case of a value under offer price.
Because of the property permits and repairs issues, the appraised value came in at $380,000. Acobes was able to work with the seller to renegotiate the property price down to $396,000. Without this renegotiated price, the buyers would have had to bring in a down payment of $86,800. Instead, they just needed to bring in $54,000, something they were able to do.
Buyers are often advised that they will be more competitive if they don’t have contingencies for things like financing, appraisal or inspections. In most cases, this works out fine. But in cases in which the buyer’s agent recognizes a potential appraisal problem, a prudent Realtor will work to structure an offer that appeases the lender, protects the buyer and results in a transaction that works for the seller.
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