Guaranty appraisal on real estate. Good idea? This must be a bubble?

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kjvmartin
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Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by kjvmartin » Fri Apr 20, 2018 12:00 pm

My wife and I have been active in the market for a house. Our range/budget has been discussed in another discussion, but we discovered a new to us tactic that our realtor is encouraging. We're putting anywhere from 10-20% down on depending on what size/neighborhood we find, but we're consistently outbid.

The house we lost today was listed for $235,000. Four years ago, relatives bought a similar house in the same neighborhood for 98k. Friends/family were telling us to buy buy buy, but we wanted to be debt free before we purchased a house. Tough lesson. We are debt free now. We offered $241k on the house with 10% down, but we would have more money down if we weren't trying to "Guarantee the appraisal." So we had to hold back some of the down payment in the event that the appraisal was low. This time we offered to put up $5k as our guarantee. This is a middle class, 1950s built neighborhood in the midwest. We were told our offer was "blown out of the water." Comps in the neighborhood are 150s to 220s depending on the condition and layout of the house. Very low number of homes for sale. This one was just about perfect for us, bordering a playground and within walking distance to our church. Close to freeway, 10 / 20 minute commute for me / wife. Best school district in the area.

To me, if the bank doesn't think the house is worth what we're offering on it, why would we buy it? Is it a "good idea" to guarantee appraisals? Also: This seems an awful lot like a bubble and has me worried. I am also be worried to wait and watch interest rates climb. :oops: Realtor calls it the strongest sellers market he has seen in his 25 year career. Thoughts on this?

boglewill34
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by boglewill34 » Fri Apr 20, 2018 12:04 pm

+1 on very few houses for sale vs demand.

Neighbor was FSBO with a sign out for 3 hours and the house sold at full list. Neighbor across the street actually got cold solicited by a buyer, guy wasn't selling the house but I guess the offered price was enough that he moved 3 weeks later.

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Pajamas
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by Pajamas » Fri Apr 20, 2018 12:07 pm

kjvmartin wrote:
Fri Apr 20, 2018 12:00 pm
Realtor calls it the strongest sellers market he has seen in his 25 year career. Thoughts on this?
Housing markets are local so it's hard to comment on yours without being familiar with it.

In general, be patient, save, and wait for a strong buyer's market.

Also, being right next to a playground sounds like a negative to me, not a positive!

kjvmartin
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by kjvmartin » Fri Apr 20, 2018 12:10 pm

boglewill34 wrote:
Fri Apr 20, 2018 12:04 pm
+1 on very few houses for sale vs demand.

Neighbor was FSBO with a sign out for 3 hours and the house sold at full list. Neighbor across the street actually got cold solicited by a buyer, guy wasn't selling the house but I guess the offered price was enough that he moved 3 weeks later.
Yes, it's even tough to schedule seeing a house. For example, we have been told you can come at 9a.m,. or 930. All other time slots booked and the "highest and best" is due that day. That's awful hard to coordinate with two work schedules.

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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by cadreamer2015 » Fri Apr 20, 2018 12:11 pm

I'm not familiar with the term "Guaranty the appraisal." Does this mean that you are waiving the appraisal contingency in your offer? (The appraisal contingency is one of 3 standard contingencies in real estate offer contracts I've seen, the other 2 being loan approval and inspection.)
De gustibus non est disputandum

kjvmartin
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by kjvmartin » Fri Apr 20, 2018 12:18 pm

cadreamer2015 wrote:
Fri Apr 20, 2018 12:11 pm
I'm not familiar with the term "Guaranty the appraisal." Does this mean that you are waiving the appraisal contingency in your offer? (The appraisal contingency is one of 3 standard contingencies in real estate offer contracts I've seen, the other 2 being loan approval and inspection.)
No, we are agreeing up front on our offer to pay up to X dollars if the appraisal is X dollars short. If the appraisal was even lower than X, then the deal would potentially be void.

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Pajamas
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by Pajamas » Fri Apr 20, 2018 12:22 pm

kjvmartin wrote:
Fri Apr 20, 2018 12:18 pm

No, we are agreeing up front on our offer to pay up to X dollars if the appraisal is X dollars short. If the appraisal was even lower than X, then the deal would potentially be void.
This is really an issue of market value vs. appraised value. If the fair market value is so much over a reliable appraised value, then that is a sign that the market is overheated. You can join the frenzy or wait for it to calm. Personally, I would not want to pay significantly more than appraised value and would certainly not promise to do so without even knowing what the appraised value actually is.

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MP123
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by MP123 » Fri Apr 20, 2018 12:23 pm

kjvmartin wrote:
Fri Apr 20, 2018 12:00 pm
To me, if the bank doesn't think the house is worth what we're offering on it, why would we buy it? Is it a "good idea" to guarantee appraisals? Also: This seems an awful lot like a bubble and has me worried. I am also be worried to wait and watch interest rates climb. :oops: Realtor calls it the strongest sellers market he has seen in his 25 year career. Thoughts on this?
I think you're right to be nervous about paying much more than the banks' appraiser thinks it's worth.

But I also think it's refreshing to hear about house prices at that level. In many West Coast markets you would be in the same situation of multiple offers higher than yours except the prices would be a million dollars higher (no kidding).

Are you planning to be there for the long term?

kjvmartin
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by kjvmartin » Fri Apr 20, 2018 12:36 pm

MP123 wrote:
Fri Apr 20, 2018 12:23 pm
kjvmartin wrote:
Fri Apr 20, 2018 12:00 pm
To me, if the bank doesn't think the house is worth what we're offering on it, why would we buy it? Is it a "good idea" to guarantee appraisals? Also: This seems an awful lot like a bubble and has me worried. I am also be worried to wait and watch interest rates climb. :oops: Realtor calls it the strongest sellers market he has seen in his 25 year career. Thoughts on this?
I think you're right to be nervous about paying much more than the banks' appraiser thinks it's worth.

But I also think it's refreshing to hear about house prices at that level. In many West Coast markets you would be in the same situation of multiple offers higher than yours except the prices would be a million dollars higher (no kidding).

Are you planning to be there for the long term?
These are what we used to consider "starter homes" lol. :D People who bough them for 90k-120k are turning them over and moving further out of the urban sprawl to newer construction or upper middle class suburbs with even better schools. McMansions? Anyway, we could stay forever. On the west coast, our jobs would probably have a much higher salary.

likashing
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by likashing » Fri Apr 20, 2018 12:49 pm

kjvmartin wrote:
Fri Apr 20, 2018 12:00 pm
To me, if the bank doesn't think the house is worth what we're offering on it, why would we buy it?
How much do *you* think the house is worth? If you could afford to pay cash for it, why would you care how much the bank thinks a merchandise is worth?

riverguy
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by riverguy » Fri Apr 20, 2018 3:05 pm

Appraisals are a joke anyways. What percentage of houses that never appraise? I would bet it is super low and only if the purchase price is wayyyyyy out of whack. Banks have a vested interest in having the property appraise. They could care less if it is right or not. As long as the loans conform, they get their cut and the loans get sent to be securitized for investors.

sbaywriter
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by sbaywriter » Fri Apr 20, 2018 5:19 pm

I had the "guarantee x amount if appraised lower than offer" on a contract when I sold my house couple of years ago - another hot housing market - it did appraise at offered price. Sounds like your realtor is giving you some good guidance on how to approach the market. But if the realtor is telling you that your bid on the last house was way under what it sold for, then you may need to change your approach.

I empathize with what you are going through. Last year I bought in new locale in another low inventory sellers market. Houses selling in one day with multiple offers and you have to make your best offer. I lost my first bid at asking price and then decided the next time I would bid over asking price if I really wanted it, and that worked.

For me, I raised "what I'm willing to pay" several times once I realized I would never find what I wanted at my original price point. I had looked at enough houses that I realized how few really met what I needed - the ones in my original price range were fixer uppers or in bad neighborhoods.

So I think part of buying a house is becoming familiar with the market and this may require re-visiting your original decisions on how much you are willing to pay. It can be scary buying a house for the first time (and second time too). Or maybe you can adjust what you consider acceptable property and find something within your original price range. Good luck!

ThatGuy
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by ThatGuy » Fri Apr 20, 2018 6:26 pm

kjvmartin wrote:
Fri Apr 20, 2018 12:00 pm
The house we lost today was listed for $235,000. Four years ago, relatives bought a similar house in the same neighborhood for 98k.

...

Thoughts on this?

It could be worse. Condemned Home in Fremont Sells for $1.23 Million
Work is the curse of the drinking class - Oscar Wilde

kjvmartin
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by kjvmartin » Fri Apr 20, 2018 6:30 pm

sbaywriter wrote:
Fri Apr 20, 2018 5:19 pm
I had the "guarantee x amount if appraised lower than offer" on a contract when I sold my house couple of years ago - another hot housing market - it did appraise at offered price. Sounds like your realtor is giving you some good guidance on how to approach the market. But if the realtor is telling you that your bid on the last house was way under what it sold for, then you may need to change your approach.

I empathize with what you are going through. Last year I bought in new locale in another low inventory sellers market. Houses selling in one day with multiple offers and you have to make your best offer. I lost my first bid at asking price and then decided the next time I would bid over asking price if I really wanted it, and that worked.

For me, I raised "what I'm willing to pay" several times once I realized I would never find what I wanted at my original price point. I had looked at enough houses that I realized how few really met what I needed - the ones in my original price range were fixer uppers or in bad neighborhoods.

So I think part of buying a house is becoming familiar with the market and this may require re-visiting your original decisions on how much you are willing to pay. It can be scary buying a house for the first time (and second time too). Or maybe you can adjust what you consider acceptable property and find something within your original price range. Good luck!
Thanks for the insight. We went from $235k asking to $241k offered for a basic ranch home, around 1000 square feet. I guess us offering $250k to match the best offer wouldn't have been the end of the world (though we weren't privy until after the bidding), but the houses in that neighborhood are old/dated and were selling for the 90s-110s just a couple years back. This is extremely unusual for our locale typically known for reasonable & widely available housing.

Here's an interesting thing about our metro area. The lower income areas were devoured by housing investors during the crash and they're happily collecting high rents since there are no "affordable houses" available for young families to buy. I have a relative who owns about 30 of them, and he's a small fish. He has a business partner who owns entire blocks in the "starter home" neighborhood. All of the houses being built start in the 300s.

kjvm

gr7070
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by gr7070 » Fri Apr 20, 2018 6:43 pm

Meh. I don't quite see the point.

The only way it's bad is if you're losing houses to other similar offers based on your inclusion of the clause.

The only way it's a positive is if your offer is out of line with the current market and this enables you to back out of an accepted offer.

If you and your realtor are making appropriate offers it certainly doesn't help you.

Personally I wouldn't include siuch a clause. If you're doing things right it will only hurt your offer. And in significant seller's market you do not want to devalue your offer.
Last edited by gr7070 on Fri Apr 20, 2018 6:48 pm, edited 1 time in total.

gr7070
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by gr7070 » Fri Apr 20, 2018 6:47 pm

BTW you've mentioned many times in this thread what these homes used to sell for.

It does not matter - assuming it's not a significant bubble, and at $200k prices the bubble isn't that big if there is one.

All that matters is what is the market rate and are you willing to buy at that rate.

kjvmartin
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by kjvmartin » Fri Apr 20, 2018 6:49 pm

gr7070 wrote:
Fri Apr 20, 2018 6:47 pm
BTW you've mentioned many times in this thread what these homes used to sell for.

It does not matter - assuming it's not a significant bubble, and at $200k prices the bubble isn't that big if there is one.

All that matters is what is the market rate and are you willing to buy at that rate.
I see your point, but what if they go back to those prices?

jh-1391
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by jh-1391 » Fri Apr 20, 2018 7:32 pm

kjvmartin wrote:
Fri Apr 20, 2018 6:49 pm
gr7070 wrote:
Fri Apr 20, 2018 6:47 pm
BTW you've mentioned many times in this thread what these homes used to sell for.

It does not matter - assuming it's not a significant bubble, and at $200k prices the bubble isn't that big if there is one.

All that matters is what is the market rate and are you willing to buy at that rate.
I see your point, but what if they go back to those prices?
There's always that risk. I'm in a crazy insane seller's market myself. I just sold and bought...closing soon. I feel like I got absolute top dollar for my house, and it honestly probably isn't worth that much once the dust settles around me (near a highway, will have commercial development right near neighborhood entrance and if trends hold, likely another storage unit facility), but everything in my little neighborhood went under contract in less than 4 days.

The house I'm buying is likely a smidge over-priced for the condition it's in, BUT it's on an amazing lot in a great location (closer to center of the city than where I am currently). So the lot will likely always sell that house. Maybe not for exactly what I bought it for, but pretty close. But I live in a city that continues to have more and more people come in from other states and overseas. The entire region is exploding. So, I feel okay buying that house for what I did.

The point of this is, I echo what others have said. You have to know your market. Despite my crazy seller's market, I feel comfortable paying the premium I did, but if you feel it's over-valued and there isn't a major reason for the high jump in prices, then just find a good spot to rent and enjoy not having the headaches of homeownership for a while.

gr7070
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by gr7070 » Fri Apr 20, 2018 7:32 pm

kjvmartin wrote:
Fri Apr 20, 2018 6:49 pm
gr7070 wrote:
Fri Apr 20, 2018 6:47 pm
BTW you've mentioned many times in this thread what these homes used to sell for.

It does not matter - assuming it's not a significant bubble, and at $200k prices the bubble isn't that big if there is one.

All that matters is what is the market rate and are you willing to buy at that rate.
I see your point, but what if they go back to those prices?
They likely won't.

Judging by the prices, you're in an area where houses aren't likely as huge a risk as the sand states.

If you're buying with the the long-term in mind, as you should be, you need to expect to live in a house at least five years. You'll, hopefully, be able to recoup much of that drop.

What if they double in 5 years again?

If you want to buy you have to accept the risk. All there is to it. Do your due diligence. Buy making the best decision with the facts available. Sleep well.

IGWT
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by IGWT » Fri Apr 20, 2018 8:39 pm

Very common in raising RE market to agree to pay x dollars above appraisal. If you can put that value to that house, go ahead and u can pay that. The banks might not lend you more than the appraisal, but u can always cover down + agreed amount over appraisal.

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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by jfn111 » Fri Apr 20, 2018 9:28 pm

Appraisals are always a look in the rear view mirror. As prices are rising they can only use closed comps. If there is little inventory they have to go further back to find an appropriate number of comps to make their appraisal. This can be very frustrating for the buyer, esp. a 3% down FHA buyer. :shock:

quantAndHold
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Re: Guaranty appraisal on real estate. Good idea? This must be a bubble?

Post by quantAndHold » Fri Apr 20, 2018 11:14 pm

gr7070 wrote:
Fri Apr 20, 2018 6:43 pm
Meh. I don't quite see the point.

The only way it's bad is if you're losing houses to other similar offers based on your inclusion of the clause.

The only way it's a positive is if your offer is out of line with the current market and this enables you to back out of an accepted offer.

If you and your realtor are making appropriate offers it certainly doesn't help you.

Personally I wouldn't include siuch a clause. If you're doing things right it will only hurt your offer. And in significant seller's market you do not want to devalue your offer.
As someone who recently sold a house in a very hot market...

If he doesn’t include the clause, he won’t get the house. The seller basically wants two things:

1) good price
2) smooth closing

In a market that’s rising quickly, there’s always a risk that the appraisal will be low, because appraisals are a look back in time, to when comparable sale prices were lower. A house that appraises low and doesn’t have either this clause or a very large down payment will not be a smooth closing.

In this kind of market, if you’re losing bids repeatedly, you really have two options. You can wait, keep saving down payment money, and hope the market stabilizes. Or you can downshift. Go for less house or less neighborhood, so that you have the financial means to win the bidding war, not just be the perpetual runner up. If you’re stretching as far as you can financially, and are still losing every bid, that means you can’t afford the places you’re bidding on.

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