Appraisal waivers... what I'm being told by local realtor
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Investor · Kyle, TX · Member since 2015 · 113 posts · 102 votes
4yI am in the Texas market. I would never buy a house the way you're doing it. If its a multiple offer situation, the "winner" is the loser. Always. Always.
64 Replies
- Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes4y
That is correct. Texas is insane.
@Caleb Brown is there any "smart" way to buy, or strategies to employ. Or are you saying that the only way to buy in DFW at this point is to willfully/ voluntarily let sellers extort tens of thousands of dollars from you in order to buy their home at the appraised value?
- Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes4y
Off market or direct to seller is another avenue, FSBO or FB groups might have some not listed, expanding the area you are looking in or adjusting criteria(price, area, condition, etc). If you are competing against others on an MLS deal it'll go over, it's not uncommon for it to go over 10/15%+ the list price. The appreciation in Texas and markets similar is nuts, looking at stats(I have seen) it's gone up 20%+ percent. So people are willing to give an arm and a leg on deals as they probably lost on many offers so they are ready to land a deal. Waiving inspections and appraisal waivers are common. Personally I wouldn't do that but everyone's different
- Investor · Kyle, TX · Member since 2015 · 113 posts · 102 votes4y
I am in the Texas market. I would never buy a house the way you're doing it. If its a multiple offer situation, the "winner" is the loser. Always. Always.
@Gene Livingston how should I be going about it?
- Investor · Kyle, TX · Member since 2015 · 113 posts · 102 votes4yIn this market, I'm the seller, not the buyer. In fact I just sold my primary. The way Donald Trump did it in the 1970's was that he played the real estate cycle. That's what I do as well. Interest rates on a 30-yr fixed have almost DOUBLED off the low. That WILL create demand destruction. And the geniuses at the Federal Reserve are about to raise the fed funds rate (short end of the curve) 50 basis points....while the economy is quickly cooling off. My play: I'm on vacation until this winter. Now, that said, I DO see potential deals every day, but I'm not interested in even the "good" ones, because I think that I deserve GREAT ones. And those are coming. It's all a cycle. And you have to know where you are in that cycle....just like Trump did.
Quote from @Gene Livingston:
I am in the Texas market. I would never buy a house the way you're doing it. If its a multiple offer situation, the "winner" is the loser. Always. Always.
- Real Estate Agent · Anaheim, CA · Member since 2020 · 9 posts · 15 votes4y
I would go after homes that have been on the market longer that way you have more leverage as a buyer with less competition. Homes that are in move-in/turn-key condition are selling fast with multiple offers. You may have to lower your expectations/standards. David Green addressed this on Episode 600 of the BiggerPockets Podcast.
I assume you are referring to having no appriasal contingency as part of the purchase contract ? fyi - when using the term " appraisal waiver " - us lenders use this term and it refers to something entirely different ...when a lender submits a file for underwriting it normally is sent through a system called AUS ( automated underwriting system ) as the 1st step ..this tells us if a file is approved or denied and also if there is a need for an apprisal or not ....if there is no need for an appraisal it is commonlly referred to as an " appraisal waiver " ( techanically called a piw or property info waiver )
@Dave Skow apologies for that. Correct, I'm referring to waiving the appraisal contingency. Meaning, it doesn't matter what the property appraises for, the buyer is on the hook to cover any appraisal shortfalls with cash, out of pocket.
@Greg R.- thanks for confirming ..... I figured that is what you meant .....this appraisal shorfall becomes an issue if your intial plan was to put a low down payment down ... what would be the down payment plan if you offered 770K ? fyi - lenders will always use the lesser of the purchase price or the appraisal .....if you offer 770k and plan to put 5% down - this is a 38,500 down and loan amt is 731,500 and if value comes in at 700K and you have to use this value - the max loan amt is 665K and the down payment now becomes 105,000....so you are right ....but if the plan was to a larger down into the mix - the shortfall might not be an issue ( other than having to have the loan repriced due to the LTV becoming higher )
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes4y
The solution is simple. If you need to have your contingencies in the contract, be that appraisal, or home inspection, or whatever.....then you need to focus on properties, 10, 14 days or more on market that dont have multiple offers. But that also means youre taking the leftovers...the properties that most people dont want.
District Invest Group545 Reviews Quote from @Dave Skow:
@Greg R.- thanks for confirming ..... I figured that is what you meant .....this appraisal shorfall becomes an issue if your intial plan was to put a low down payment down ... what would be the down payment plan if you offered 770K ? fyi - lenders will always use the lesser of the purchase price or the appraisal .....if you offer 770k and plan to put 5% down - this is a 38,500 down and loan amt is 731,500 and if value comes in at 700K and you have to use this value - the max loan amt is 665K and the down payment now becomes 105,000....so you are right ....but if the plan was to a larger down into the mix - the shortfall might not be an issue ( other than having to have the loan repriced due to the LTV becoming higher )
I was planning on putting around 10-12% down and sticking with a conforming loan, under 647k. I made one offer at 724k. I could go up or down a bit and adjust my down payment to keep my loan under the loan limit. My understanding is that the LTV would have to be no more than 70% to get an appraisal waiver from the lender. I'm nowhere near that size of down payment.
- Real Estate Broker · Austin, TX · Member since 2022 · 89 posts · 93 votes4y
It could be accurate...or at least the most common thing being seen in your market. That being said, there are Realtors who will (and could) say the same for the greater Austin area. To that I would say there is always a way to get other offers accepted.
This year alone, competing against multiple offers, I helped buyers win with FHA loans (no waiver), VA loans (no waiver) and conventional loans with no or partial appraisal waivers. Depending on area, we do need to 8-10% over asking or more for resale homes...and some new builds. But there are all kinds of homes, prices and scenarios that still work in this market - you just need someone who knows the data and is willing to do the research and take the time to educate you on your options in your market.
The 'easy' thing to do right now for Realtors is to take only the highly qualified buyers with lots of cash to put down. Don't get me wrong - those clients are amazing (!), but that's not the reality most buyers are in and I really enjoy helping people achieve their goals - so that means going the extra mile. I'd encourage you to find someone who can help you do the same in your market.
Good luck!
Thanks @Celine Crestin. I have no problem going over list... that is, as long as the house will appraise. My hang up is committing to eat appraisal shortfalls with cash out of pocket - especially when that amount is in the tens of thousands. I can eat 5, maybe 10k, but I refuse to play the game that a lot of inexperienced/ desperate buyers are playing.
Can you tell me how you got offers accepted with no waivers in multiple offer scenarios? Do you know if you were going up against offers that waived all contingencies? Would love to know how you're navigating these situations.
- Real Estate Broker · Austin, TX · Member since 2022 · 89 posts · 93 votes4y
Quote from @Greg R.:
Thanks @Celine Crestin. I have no problem going over list... that is, as long as the house will appraise. My hang up is committing to eat appraisal shortfalls with cash out of pocket - especially when that amount is in the tens of thousands. I can eat 5, maybe 10k, but I refuse to play the game that a lot of inexperienced/ desperate buyers are playing.
Can you tell me how you got offers accepted with no waivers in multiple offer scenarios? Do you know if you were going up against offers that waived all contingencies? Would love to know how you're navigating these situations.
I totally get it - I personally do not want to offer huge sums over appraisal as well when buying. Keep in mind though, if your offer is close to what the comps will be (say the listing agent priced it low on purpose and your 10% over asking is now actual market value) then a full appraisal waiver most likely is not super risky, but looks super appealing to a seller. My point is not every full waiver is scary.
Partial waivers in the amounts you mentioned are still very positive in most sellers eyes.
I've won doing numerous things - but I'd say the biggest factor is my highly responsive and professional communication with the other agent involved. MANY agents submit an offer and don't even speak to the other agent, let alone respond quickly and knowledgably. It goes a LONG way to work with other solid agents to help the transaction go smoothly.
- New to Real Estate · Member since 2021 · 104 posts · 30 votes4y
That sounds "right" @Greg R.and it IS insane. I have been trying to buy in Vermont for a while, either my own residence or an investment property. I'm paying cash so appraisal is not as big a concern. I'm at the low end of the market ($175,000 - $285,000, although I look at houses up to $300,000) and almost everything I have been interested in has closed for $10,000-$60,000 over asking. If I hear there are six offers, and there almost always are, I don't bother making an offer, and when I look it up after it closes it always has gone over what I would have paid for it. Vermont should have a giant sign over the interstate that says "Your money's not good here," LOL. They sure don't want mine. I have found homes for $185,000-$230,000 that I could afford to be very competitive on, but they weren't great and I was not willing to overpay for them. I live in coastal Eastern Massachusetts and the market is worse than Vermont here, plus totally unaffordable. Pretty much nothing under $700,000. A realtor I know here said that in Boston, you get 15 minutes in a $800,000 property (which is basically a condo) and all the offers will be over $1,000,000, all with no contingencies. I have run numbers on dozens of distressed properties and with how far out contractors are booked and the cost of materials, there has not been anything worth pursuing since December 2020, except for one CHEAP ($99,000!) Vermont property that had unreliable internet, and almost no kitchen (just a sink in a pantry sized room), which I actually kind of regret not buying. The town zoning admin called me back and weighed in positively on a deal breaker "I don't see how I can tell you that you can't put a kitchen in your barn." SO Vermont! He called me after someone else got it under contract. That answer would have made me put in an offer that would have won. The internet still would have sucked and I have not found a contractor that can start before August or September, so I would have been glamping in it for a while. The market creates a feeling of scarcity and urgency, even panic. I am trying not to succumb to it and to not buy anything unless I find a deal I would buy at another time.
Thanks much @Celine Crestin, great info. I do have a really good agent who is working hard, very communicative with the listing agents, etc. What I've seen so far is that the listing agents are generally not communicative due to the amount of interest. They list on a Tues/ Wed, offer showings over the weekend then call for best/ final on Sunday evening or Monday AM.
We were interested in one that was listed at 675k and they told my agent not to bother submitting an offer unless we were north of 800k.
Another listing agent had a condescending comment about our partial waiver offer (which was 25k over list), and said that they haven't accepted an offer without full waivers on everything in over 12 months.
In any event... I'm confident that the tide will shift at some point. When it does, me and other investors will be happy to show the same decorum to those individuals when the shoe is on the other foot. Karma is a cool thing, it has a way of finding the right people down the line.
- Realtor · Cincinnati, OH · Member since 2018 · 8 posts · 11 votes4y
I am in the Cincy/NKY area, and this is happening here as well. However, certain highly desirable areas are worse than others. One of the worst I've heard recently was a buyer who lost out even with $125K appraisal gap coverage. It's definitely tough out there. You've gotten some great advice here though. Be open to homes that have been sitting. And don't overlook FSBO's. If your agent is willing, he or she can knock doors of the neighborhoods you're searching in. Sometimes you can meet needs by connecting with sellers before the sign hits the yard. And find an agent who's constantly networking with other agents to find properties before they hit. Not every seller wants to deal with the craziness that comes with listing in this market. It takes a bit more hustle these days, but if you keep going, you'll land something!
I'd also keep an eye on properties that fall out of contract. Everyone wants the shiny, new houses when they first hit the market, but buyers are getting cold feet more often and jumping ship for reasons that aren't always related to the home. Acting on a property as soon as it goes back on market has been one of the best ways to get my buyers a home in this crazy market. Sometimes you can even get the inspection report from the deal that fell apart.
Hang in there, and best of luck!
Thanks for sharing @Julie Williams. Sorry to hear about your experience, things will shift sooner or later. The idea that the market will go on like this indefinitely is not seated in reality. The market is cyclical and history has proven this. I might be in a situation where I just rent for a year (or more) rather than make a stupid purchase.
I'm in a bit of an compromised situation, as "life" requires me to move to the DFW area before August. The wise move is to be patient and wait for the right opportunity. A lot of the people making stupid buying decisions are likely in situations similar to mine.
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes4y
Its the same here in Maryland near Annapolis . House in my neighborhood went up for $700K they took an offer of $770K . The buyers were afraid of asbestos shingles ( Ni big deal) . They dropped the house to $600K and had a bidding war 11 offers first day . All over $750K . House had very few updates since 1965 , but excellent condition
Quote from @Greg R.:
Thanks much @Celine Crestin, great info. I do have a really good agent who is working hard, very communicative with the listing agents, etc. What I've seen so far is that the listing agents are generally not communicative due to the amount of interest. They list on a Tues/ Wed, offer showings over the weekend then call for best/ final on Sunday evening or Monday AM.
We were interested in one that was listed at 675k and they told my agent not to bother submitting an offer unless we were north of 800k.
Another listing agent had a condescending comment about our partial waiver offer (which was 25k over list), and said that they haven't accepted an offer without full waivers on everything in over 12 months.
In any event... I'm confident that the tide will shift at some point. When it does, me and other investors will be happy to show the same decorum to those individuals when the shoe is on the other foot. Karma is a cool thing, it has a way of finding the right people down the line.
It sounds like you’re upset at the sellers in the quoted post and another above where you state that sellers are engaged in extortion. If they have a stack of offers with no contingencies and higher than list purchase price, how are they extorting anyone? Should they be tossing all those offers in the garbage? I get it’s frustrating as a buyer but that’s how free markets work.
As stated above look for either high dom “leftovers” or 0 dom listings with very limited showing times. I’m in escrow now on a deal where there was a 3 hour window weekday morning for showings. First day had multiple offers, mine was strong including a pof showing more than 50% of purchase price sitting in a bank account and no contingencies. In a rapidly increasing market appraisals can come in low due to the lag between contract date and sale date, plus with such low inventory the volume of sales is not real high, so you need to understand and accept that risk if you’re going to waive the appraisal contingency.
- 4yJoe HammelBusiness MemberReal Estate Agent · Metro Detroit, MI · Member since 2018 · 614 posts · 666 votes
@Greg R.
Supply and demand.
If there are 5 others who are willing to do it, then it’s either be the highest and best bidder or miss out.
Now, I wouldn’t generalize it like it sounds like your agent did. It’s case by case. Opening weekend, hot listing, 50+ showings, 12+ offers - yep, that’s probably right where you’re at.
30+ days on the market? No way. Offer a little below list price.
Your agent is hired to negotiate for you. A good agent has intuition and negotiation skills (not many actually do, but the good ones do) that walk all over inexperienced, lazy, or unskilled agents.
On the appraisal guarantee…that’s how markets rise. Is what it is. Appraisals look at “past data” so if they’re only looking at old comps, how would prices ever rise in an appreciating market? Answer = appraisal guarantees.
If it’s a primary residence, you might have the option to offset it, by putting less money down.
If it’s an investment deal (which at $700k I’m guessing it is not) then just run the numbers and see if it makes sense.
If there are 10 other offers, you know the house is “worth it” because there are 10 other offers…so the market value doesn’t always equal the appraisal value (again, because appraisals aren’t market value, they look at old/past/historic data)
You can do partial guarantee of $5k, $10k, $20k etc which is probably more where you would be in the 3-6 “other offers” situation. But that’s what the agent is for, figuring out “where things are at”.
Another nugget. If it appraises for $50k less, then it’s not the full $50k out of pocket. If you’re putting 20% down it’s now 20% down on $700k rather than 20% down on $750k. So it’s actually only $40k more out of pocket. Which again, in this situation, you could probably switch from 20% down to 10-15% down and it would be the identical same cash out of pocket.
There’s a lot of perspective to have in these situations. Hire a great agent who can at least discuss and brainstorm these with you.
FIRE Realty Team - Keller Williams5379 Reviews - New to Real Estate · Member since 2021 · 104 posts · 30 votes4y
@Greg R. I tied to edit a post and ended up deleting it. I also rent, after selling my childhood home in 2019. Luckily my sibling found a house (with a harbor view!!!!) at a decidedly townie price and we split it. Out landlady will downsize in to it in July 2023, so at some point I will have to bite the bullet and wade in to the fray, but perhaps things will have calmed down considerably by Fall 2022 or Spring 2023. We were to leave by July 1 2022, and she extended it to Sept 1 2022 and were beginning to panic, but she decided to keep us on longer. The cost of lumber, since she plans an addition, did not hurt our request.
Quote from @Greg R.:
I'm in the market to purchase a primary home in the DFW area, specifically around the Murphy/ Wiley area. My realtor and others that I've spoken to are making it seem that it's impossible to win an offer on a home without a FULL appraisal waiver. Not only that, but the offer has to be way above list. For instance, on a 700k home, an offer would need to be in the realm of 750-770k with a full appraisal waiver and no contingencies.
Does this sound right?
To me it sounds like absolute insanity. Let's say I heed the advice of the local experts and go in at 750k for a house listed at 700k with no contingencies. Appraisal comes back at 700k, that means I either have to pony up 50k to cover the appraisal shortfall, or lose 7.5k earnest money to get out of the deal.
I don't see the appeal here. I've purchased homes in competitive markets but I've never been told that I essentially have to pay off the seller with 30-70k to have the opportunity to buy their house at the appraised value.No one is going to accept an offer right now with an appraisal contingency because houses are going way above whatever bogus number an appraiser will come back with. Some folks mentioned going after properties that have been on the market for a couple of weeks. Well these properties are probably stale for a reason. Since you are looking for a primary home, I highly doubt if any of these stale properties will appeal to you. You just have to accept the market for what it is and will have to do things that you normally wouldn't do in order to make a competitive offer. On my recently purchased house, my loan contingency was 10 days.... This scared the crap out of me because I wasn't sure if my loan officer could perform that quickly. Our escrow period was also just 19 days. Inspection contingency and appraisal contingency? Didn't even think about including it in my offer. Luckily, I got the house. What made it extra difficult is the fact that I wasn't able to sell my house first before purchasing this new house. So essentially there will be a few months in which I will be holding a double mortgage and holding two primary houses. Adding a sell contingency to my offer would have given it zero chance of being accepted. It's just the nature of the market right now.
oh, and also, my lender waved the appraisal because he felt I was buying it below market value, woohoo!
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