Bid high because of appraisal contingency?

[quote author="dhalsim2" date=1246951683]I started shopping for a five-bedroom home back in April. My wife and I fell in love with the first house that we saw, a foreclosure that was listed at $516k. We bid $480k, but got blown away by the frenzy of bidders. The winning bid was $560k and the bank didn't bother trying to counter us, but even if it had, we probably wouldn't have gone up much because it was the first house that we saw.



We have looked aggressively for three months for another good house, and although we found some good ones, we didn't find anything that we liked nearly as much as that first one. It had everything we wanted in a house, but it was also walking distance to relatives.



Now it's three months later and that house fell out of escrow. We immediately placed a very high bid that has put us in first place among the bidders. However, we aren't particularly comfortable with the amount that we bid. My real estate agent points out that it's all contingent on appraisal, so if the appraisal comes in lower, I can easily negotiate downwards. Both my mortgage broker and a friend who has also been in the market say that that's what a lot of people are doing--bidding insanely high, then negotiating afterward based on the appraisal contingency.



What do you guys think about this strategy? Have you heard of it before? Think there's a good chance of getting burned?</blockquote>


Really the house fell out of escrow, what a surprise. Yes if you like to pay above what the market is then this is a fine example of paying to much. This unfortunately is the latest ploy among RE agents to sell homes and try to build urgency by saying there is 3 bids and you should over bid and the the appraisal will come in lower at which point the seller may not sell and you have the joy of making up the difference in cash to make the deal work which you will not do as you are paying to much. Give it time there is a sea of for closures landing at the end of summer and you will have a lot to choose from. If you want to pay above the market then go right ahead a be part of this scam and start bidding otherwise stay away unless you like to get fleeced.
 
[quote author="graphrix" date=1247074027][quote author="readytopurchase" date=1247056634][quote author="IrvineRenter" date=1247054559]



The appraisals are not coming in at the desired number. In most instances people are closing the deals with additional cash. The banks are taking the fastest possible closing rather than the highest possible price for two reasons: (1) <span style="color: blue;"><span style="font-size: 14px;">they know how much inventory is coming</span></span>, and they do not want to be in a long escrow when prices collapse, and (2) the longer something is in escrow, the more time and effort it takes from their asset managers. Their instructions are to clear the books.</blockquote>


In regards to the blue text, I keep hearing about this, but I'm not seeing it. Can the moratoriums just keep getting extended out further and further?</blockquote>


Read <a href="http://www.calculatedriskblog.com/2009/07/more-evidence-of-foreclosure-backlog.html">Calculated Risk</a>. get a <a href="http://www.foreclosureradar.com">foreclosure radar</a> account. and keep reading here. If the NODS and the NTSs exceed the inventory, then it only takes jr. high math to figure out that there will be more inventory. People who get caught up in this recent buyer frenzy are just part of the herd, just like 1993. Once this buyer pool drys up, look out. These are not move up buyers, once they dry up, they will help crush the low-end market and the high-end market will crash because no one can move up.</blockquote>


or just read yesterday's LATimes story about what is coming down the pike. Right now in LA county, almost 10% of mortgages are 90 days late, but only 1% are getting foreclosed on.



How many of that 10% who are late do you think are going to be able to cure their deficiency in the next year?



Do you think The OC is going to avoid this freight train coming down the 5 freeway?
 
[quote author="graphrix" date=1247074027][quote author="readytopurchase" date=1247056634][quote author="IrvineRenter" date=1247054559]



The appraisals are not coming in at the desired number. In most instances people are closing the deals with additional cash. The banks are taking the fastest possible closing rather than the highest possible price for two reasons: (1) <span style="color: blue;"><span style="font-size: 14px;">they know how much inventory is coming</span></span>, and they do not want to be in a long escrow when prices collapse, and (2) the longer something is in escrow, the more time and effort it takes from their asset managers. Their instructions are to clear the books.</blockquote>


In regards to the blue text, I keep hearing about this, but I'm not seeing it. Can the moratoriums just keep getting extended out further and further?</blockquote>


Read <a href="http://www.calculatedriskblog.com/2009/07/more-evidence-of-foreclosure-backlog.html">Calculated Risk</a>. get a <a href="http://www.foreclosureradar.com">foreclosure radar</a> account. and keep reading here. If the NODS and the NTSs exceed the inventory, then it only takes jr. high math to figure out that there will be more inventory. People who get caught up in this recent buyer frenzy are just part of the herd, just like 1993. Once this buyer pool drys up, look out. These are not move up buyers, once they dry up, they will help crush the low-end market and the high-end market will crash because no one can move up.</blockquote>


Such a pessimist. The market can easily handle the 6408 currently scheduled Trustee Sales, and the additional open 9462 Notices of Default along with the current open inventory.



It's on 3 months worth of May sales in scheduled foreclosures with another 4 months worth of inventory in the NODS.



I don't see any problems, it's only seven months of inventory in the pipeline with an additional month of inventory coming into the pipeline each month.



</sarcasm>



The current market is relatively tight from an inventory standpoint. As long as the banks can backlog the foreclosure process, they can maintain a tight market with the few organic sellers capable of selling or forced to sell due to family circumstances. As we head into the slower summer and then Fall and Winter months, the backlog will increase, the months of inventory should increases, however it may not. Homeowners that can sell won't want to give it away compared to the wishing price sellers listing at what they need not to get slaughtered.



It's a very abnormal market with very few organic sellers. One look at the property tax rolls and the doubling of property taxes from 2000 to 2008 should hint to how few sellers likely retain equity given prices are plowing back to 2003 levels. Of the potential pool of sellable homes, too few actually have the capability of selling: in many areas, 1/3rd are rentals, the other 1/3rd were sold in the last three years and remaining 1/3rd typically only sell in family distress and wouldn't normally be sellers.



IMHO, the buying frenzy from 2006-2008 literally ate future demand accelerating both first time purchases and move-up buyers. Even in a down market you have organic sellers with equity however your normal organic sellers are gone because they've already done their move-up buy.
 
[quote author="No_Such_Reality" date=1247128780]IMHO, the buying frenzy from 2006-2008 literally ate future demand accelerating both first time purchases and move-up buyers. Even in a down market you have organic sellers with equity however your normal organic sellers are gone because they've already done their move-up buy.</blockquote>


Its even worse than that because the people who are getting foreclosed on are going to be excluded from the market for 5 years, so the very people you need to buy to clean up the mess will not be able to.
 
Too many BS games and lies. I would just bid what the house was worth to me and forget the rest. Why is everyone so worried about whether or not they will get the house? IMO, too many folks are trying to control too much that is outside their control.



Better yet, I think I would just wait longer before buying a home.
 
[quote author="freedomCM" date=1247104954]Do you think The OC is going to avoid this freight train coming down the 5 freeway?</blockquote>


And up the 5 from San Diego, and in on the 91 from the Valley of the Dirt People......



<img src="http://www.hiltz2.com/images/stories/tvguide/awakening.jpg" alt="" />
 
[quote author="sugarspunZ" date=1247016183]i am a bit confused. is the property the OP is talking about an REO or a Short Sale?



2nd. If the property is an REO is the listing agent obligated to submit every offer to the lender? or can he/she use his/her spider senses and just submit the solid offers?</blockquote>


It's an REO.



I <i>believe</i> that the listing agent has to submit every offer.
 
[quote author="dhalsim2" date=1247197595][quote author="sugarspunZ" date=1247016183]i am a bit confused. is the property the OP is talking about an REO or a Short Sale?



2nd. If the property is an REO is the listing agent obligated to submit every offer to the lender? or can he/she use his/her spider senses and just submit the solid offers?</blockquote>


It's an REO.



I <i>believe</i> that the listing agent has to submit every offer.</blockquote>


In theory, yes.



In practice, who knows?



Plus, the seller can tell the realtor ahead of time "don't send me offers below x dollars, don't send me FHA/VA offers, etc.".
 
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