Contract price: Pay or Play? No Dice!!

By:Charles Bonfiglio Jr

So the market has improved, but what about prices? How much is to much? Am I over paying?
These are the questions we Realtor's get asked frequently and there are various answers for each.  There is a little game that is being played with your time and money. Depending on your Realtor's philosophy and knowledge level, will determine what you do and if you are protected.  Let's walk through this scenario and see.

I am going to skip the first few steps and get right to writing the offer. Realtor pulls up comparable's (comps) to browse through and comes up with an opinion of value (BPO) based on comps, market conditions and  property condition. Keep in mind we have no way of knowing what the other comparable properties look like inside, except for  MLS photo's (neither do appraiser's). Please remember value is determined what someone is willing to pay for something, there is no magic formula and in most cases we are trying to hit a moving target. Realtor say's based on what I see the value should be ___. Listing price is above BPO, but we are in a hot market and probably has multiple offers. Depending on the property, you will need to either take their word, or sometimes the Realtor's either choose, or are required to use, on-line programs to take the guessing of truth out of the equation. Most bank owned (REO-Real Estate Owned) properties have these system's in place and all agent's must use them to provide transparency.

You will be told to present your highest and best offer by a certain time so now is your chance to show how much this house means to you and your family, sometimes bidding way over. Here is the trick or game: Let's say you bid $20,000 over to at least give yourself a chance and get in to the "game". The Realtor will usually say let's just do it and let the appraisal dictate the price because we know from the comps that it will never appraise and the Seller will "have" to drop their price because no one will ever pay over asking and the Seller would never ask such a unreasonable thing. We still have this contingency or that period to get out. Here is the issue, this is the biggest investment of your life so to be playing with your time, emotions and money is not fair.
There are many contracts out there that favor one party or another in various ways. There are amendments and addendums that do the same. There are various agents with various knowledge levels. Your uncle Tony or cousin Michelle does not mean knowledge. Keep in mind that your family will have a lot of input, but their input is not the same emotional one you will have and they will kill deals instead of help you in most cases. Use your gut and your data to determine your decision, after all, are you not the one that will be living there and paying the bills?  Keep in mind that inspections are almost always done in the first 5, 7 or 10 days and cost about 300-400 to complete. Appraisals are usually done within first 15 days and usually run about $400-$500. If you have a contract that does not have an appraisal contingency, then guess what? It's not there, unless you add it, no matter what your Realtor say's. This means if you get a low appraisal and there is no contingency then we have a problem. This is when the finger's start to get pointed and the ego's are turned up, all on your dime. Put yourself in Seller's shoes.

We approach the Seller with the great news of your house is worth lower than what we contracted for. Seller say's, so what, I want my money, Buyer say's, I cannot and will not pay over appraisal, I am not a dummy and contract is contingent on it so you need to lower it. I paid for inspections and appraisal so it's not fair to me. The fact is, did Buyer ever have any intention of paying what they signed to pay or was Buyer simply playing the game? You are know past your inspection period so no getting out of that one, the only contingency usually left is the financing, not appraisal contingency which are different. All the while, guess what is else is at risk? Your escrow money. Why do think it is usually thousands of dollars? For this reason. To show how serious you are, but also to go after, if need be.

In this market there are many Buyer's paying over list price. You just need to know the facts and what you sign. There are many Buyer's going through this process numerous times and blowing money to learn this the hard way. Protect yourself or pay the price.

 

Charles Bonfiglio Jr is Broker/Owner of AAA Realty Group

https://www.facebook.com/chuckbonfiglio

https://twitter.com/realestatepad

 

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