Appraisal Waiving Stress

[Chris Brillante]

I am currently looking for a multi-family house in the Somerville area and am running into an appraisal issue when putting in offers. I was just recently beat out on an offer as another buyer completely waived their appraisal contingency. Is this going to be the norm going forward? I had incorporated a term in my offer waiving up to 10K for the appraisal and I thought that was crazy. The thought of waiving the appraisal contingency entirely seems reckless. But it also seems to be what wins homes. Just curious to get your thoughts and maybe advice dealing with this moving forward. Thanks!

[John M Chludzinski]

In my mind, I always waive the appraisal contingency.  By that I mean, when I purchase property, I have spent a lot more time at the property than the 20 minutes the average appraisal takes.  I have done a lot more research into the economics of the deal, property condition, price trends, etc.  Therefore, I bid what it is worth to me, and don't care if the appraisal comes in above, below or at contract price.  BUT to adopt this mindset, you must have enough cash reserves to get the financing you want on the property no matter the appraised value.  Then you can sleep soundly knowing that if your offer is accepted YOU will get what you need out of the deal. 

Years ago, I and 3 other investors locked up a sweet deal for a two family rental property in New Brunswick 2 buildings off College Avenue.  Best location in town for a student rental.  Price was $300,000 at a time when the HIGHEST comp of any two family in town was $240,000 or so.  BUT - the property was a luxury rental, with gross rents of $60,000 PER YEAR. The property threw off almost $50,000 in CASH every year.  We lost that deal because two of the partners could not come up with the extra down payment and the other two of us did not want to cut them out and risk burning the relationship between us.  So we let it go. That's when I formulated my deal mentality of "appraised value? who cares?" That property has turned over recently at $780,000.

So if you have the resources, waive the appraisal and inspection contingencies, and be your own judge of values.  Which might, in the end, lead you to conclude that many of the deals being done right now are not, after all, a good deal for the buyer.