Buyers, understand unless you’re paying cash, your loan is entirely contingent upon the home’s appraisal value. Sellers, if you accept a non-contingent offer, understand it’s not a done deal until your Buyer can demonstrate their ability to close the escrow—especially when the appraised value and the sales price are miles apart.
In other words, don’t count your chickens just yet.
In this hyper-competitive market, savvy agents learn the importance of “pre-qualifying” their clients, early—instead of often, deftly manage everyone’s expectations, and understand what their clients can absorb in the event a property doesn’t appraise.
Lenders will only fund a loan proportionate to the appraised value, so if your gorgeous Berkeley Craftsman with “million-dollar” Bay Views doesn’t appraise, your earnest Buyers need to fill the gap. And, if you’re working with an agent who promises the Moon...read on.
The Too Good to Be True Non-contingent Offer…
Caveat emptor is an appropriate adage when it comes to anything deemed “too good to be true” anywhere, but particularly in the real estate industry—including whopping over asking price offers.
Sellers should take care to examine the “gotchas” associated with any non-contingency offer—including potential financial exposure. Accepting an overblown offer can lead to interminable delays while Buyers scramble to get their finances together. Taking a property off the market confuses potential Buyers, and negatively impacts your marketing efforts.
In other words, have a Plan B.
Caprice and Whim Are Terrific...in Period Theater
Ok, Buyers, take a deep breath, don’t give up hope, AND, don’t let the dream cloud reality, but, be aware that Lenders can change requirements with caprice.
I recently learned firsthand the whimsy of a Lender, with Buyers one week away from closing the Lender switched it up, requiring 36 months of reserves, instead of the standard 12.
Queue the trombones...the deal went sideways, and the home went back on market. For what reason? We still don't know.
A Potentially Expensive Oversight
Should a Seller “overlook,” or forget to disclose any issues on the home's condition, or discrepancies between square footage and tax records, are the types of issues that could “come back to bite you,” to put it bluntly.
If a Seller is well along the path to closing escrow, and these issues become apparent during appraisal, the Seller risks losing the deal. Failure to disclose might also cost a Seller their Buyer’s “earnest money deposit” if they decide to bail on the sale due to these discoveries.
Lastly, if there are any defects, or discrepancies in square footage, bed, or bath count — disclose this knowledge — early.
In other words, disclose honestly.
If a Seller decides to pursue the Buyer’s deposit the whole matter may go through a lengthy adjudication—even if liquidated damages have been signed in the contract—there are no guarantees a Seller will get the deposit...regardless of what you’ve heard.
My advice—consult a real estate attorney.
Slow Your Roll
The best way to avoid these pitfalls is to respond with a small contingency, and allow enough time for appraisals and securing a loan.
For Buyers, adjust the tempo to lento. It’s beyond prudent to spend time examining your purchase and determining its condition and value—it’s most likely the most expensive investment you’ll ever make. It’s a natural part of the process—it shouldn’t be rushed.
And Sellers, if someone is paying you handsomely for that charming Berkeley Hills Craftsman with amazing views, it’s only fair to allow them the opportunity to inspect and appraise.
Taking a step back to make an informed decision will help Buyers and Sellers succeed—with way less frenzy and stress.