Bid high because of appraisal contingency?

D

dhalsim2_IHB

New member
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?
 
I did not bid on a desirable home because by the time I came to make an offer, there were multiple bids over asking which was out of our reach (it was an REO). Then come to find out that the appraisal came in low (within our reach) and the bank accepted the new price! Knowing that, with our next offer, I'll probably overbid with the idea of becoming 1st in the bidding war and then negotiate down after the appraisal. It stinks that this is what is going on. Or, I'll just scrap it altogether and stay put where I am.
 
Bidding high with an appraisal contingency is becoming a common practice. The theory is that once you are in escrow that the seller doesn't want to cancel it even if they must accept less. It is a risky proposition because you could get a high appraisal and be forced to overpay, or the seller may choose to cancel escrow and go with a higher back-up offer. When using this tactic, or any ploy to get into escrow, you must be emotionally prepared to walk away from the property or pay more than you want.



Also, just because you are the highest bidder, it doesn't mean yours is the offer the seller will accept. Sellers are smart enough to understand the appraisal contingency game, and they may pass over your bid for a lower bid without this contingency.
 
or a lower all-cash bid, as exemplified by the GG house that got 135 bids on Lasner's blog today.



highest contingency bid =~$580k, but they took a $500k all cash bid.
 
[quote author="freedomCM" date=1246959142]or a lower all-cash bid, as exemplified by the GG house that got 135 bids on Lasner's blog today.



highest contingency bid =~$580k, but they took a $500k all cash bid.</blockquote>
135 bids???
 
[quote author="usctrojanman29" date=1246960033][quote author="freedomCM" date=1246959142]or a lower all-cash bid, as exemplified by the GG house that got 135 bids on Lasner's blog today.



highest contingency bid =~$580k, but they took a $500k all cash bid.</blockquote>
135 bids???</blockquote>


Peak sale at $760K, on the MLS at $386,100.



I'm seeing a lot of that on the foreclosure properties. Usually about 10-20% below market but aggressively below market compared to the wishing price listers. I saw a staged empty property this weekend doing sealed bids that must have had 60+ realtor cards spread out on the kitchen counter top.



There is very little inventory out there you can actually buy below $500K and a lot of buyers in that range.
 
[quote author="No_Such_Reality" date=1246963083]I saw a staged empty property this weekend doing sealed bids</blockquote>


So, is that basically the same thing as a blind auction??
 
[quote author="No_Such_Reality" date=1246963083][quote author="usctrojanman29" date=1246960033][quote author="freedomCM" date=1246959142]or a lower all-cash bid, as exemplified by the GG house that got 135 bids on Lasner's blog today.



highest contingency bid =~$580k, but they took a $500k all cash bid.</blockquote>
135 bids???</blockquote>


Peak sale at $760K, on the MLS at $386,100.



I'm seeing a lot of that on the foreclosure properties. Usually about 10-20% below market but aggressively below market compared to the wishing price listers. I saw a staged empty property this weekend doing sealed bids that must have had 60+ realtor cards spread out on the kitchen counter top.



There is very little inventory out there you can actually buy below $500K and a lot of buyers in that range.</blockquote>
Wow, those buyers are like locust. We are in a very crazy market...little inventory everywhere due to the lack of organic sellers who have equity. I'm sure the realtors are signing the same song as they did during the bubble years where they say..."bid high so you can get this home so you won't be priced out forever since real estate prices are ready to take off." I wish most buyers weren't so gullible.
 
[quote author="SoCal78" date=1246963257][quote author="No_Such_Reality" date=1246963083]I saw a staged empty property this weekend doing sealed bids</blockquote>


So, is that basically the same thing as a blind auction??</blockquote>


I don't know what it was; but basically, it was a put your best shot in and they'll pick the one they like the best after the weekend. The more staged bidding wars I see the more content I am waiting.



A trip down ForeclosureRadar is a bit humbling. June numbers will be interesting, but here were May's:

May OC home sales: 2667 (<a href="http://dqnews.com/Charts/Monthly-Charts/OC-Register-Charts/ZIPOCR.aspx">DQnews</a>)

May OC New Notice of Default: 2625

May OC New Notice of Trustee Sale: 2306



<b>When</b> they start processing through those NOTS instead of postponing 2/3rds of the them, it'll be interesting if the pent up buyer pool can absorb them or if they fall apart...
 
50 + offers over the "bait and never close at" price are happening every day. Listing Agents are now counter offering to over valued offers requiring the buyer to acknowledge they have to pay the price they offer even if the appraisal may come in low. Most will cancel, but those who stay in will likely over pay for the home. (Ex - $500k bait price in $550k value area. $565 bid, $550 appraisal. Buyer pays $565 and puts additional cash down and meets loan to value criteria. This is more common than you can imagine.)



Remember...Tuesday is Soylent Green Day



Soylent Green Is People
 
<blockquote>A trip down ForeclosureRadar is a bit humbling. June numbers will be interesting, but here were May's:

May OC home sales: 2667 (<a href="http://dqnews.com/Charts/Monthly-Charts/OC-Register-Charts/ZIPOCR.aspx">DQnews</a>)

May OC New Notice of Default: 2625

May OC New Notice of Trustee Sale: 2306



<b>When</b> they start processing through those NOTS instead of postponing 2/3rds of the them, it'll be interesting if the pent up buyer pool can absorb them or if they fall apart...</blockquote>


These are the numbers that people thinking now is the time to buy need to see.



2667 homes "sold" in May.



4931 homes either in default or moving toward default in May.



The sales are barely outpacing the NOD's.
 
[quote author="Soylent Green Is People" date=1247007645]50 + offers over the "bait and never close at" price are happening every day. Listing Agents are now counter offering to over valued offers requiring the buyer to acknowledge they have to pay the price they offer even if the appraisal may come in low. Most will cancel, but those who stay in will likely over pay for the home. (Ex - $500k bait price in $550k value area. $565 bid, $550 appraisal. Buyer pays $565 and puts additional cash down and meets loan to value criteria. This is more common than you can imagine.)



Remember...Tuesday is Soylent Green Day



Soylent Green Is People</blockquote>
Just more prove that people (in general) are sheeple. "BID HIGH OR BE PRICED OVER FOREVER" is probably the new realtor slogan.
 
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?
 
[quote author="No_Such_Reality" date=1246963083][quote author="usctrojanman29" date=1246960033][quote author="freedomCM" date=1246959142]or a lower all-cash bid, as exemplified by the GG house that got 135 bids on Lasner's blog today.



highest contingency bid =~$580k, but they took a $500k all cash bid.</blockquote>
135 bids???</blockquote>


Peak sale at $760K, on the MLS at $386,100.



I'm seeing a lot of that on the foreclosure properties. Usually about 10-20% below market but aggressively below market compared to the wishing price listers. I saw a staged empty property this weekend doing sealed bids that must have had 60+ realtor cards spread out on the kitchen counter top.



There is very little inventory out there you can actually buy below $500K and a lot of buyers in that range.</blockquote>


This is totally true right now. Freedom is right though, if you want the property, just be the offer with the most down. I've seen several REO's go for super cheap (for the current market) because the banks seem to deem highest and best as most down is best, highest doesn't matter. It seems to me that the banks are leaving a lot of money on the table. I could see if there were a number of other properties coming on and escrow falling through would mean an even bigger decline in value, but that's just not the case right now.



The other thing that I don't get is how the appraisals are coming through on some of the $500K or below properties I've seen go contingent iin a matter of days at WTF prices. Yeah, they are a bit nicer than the handful of crap REO's, but not worth 30% plus or more than the REO comps.
 
[quote author="stepping_up" date=1247049832][quote author="No_Such_Reality" date=1246963083][quote author="usctrojanman29" date=1246960033][quote author="freedomCM" date=1246959142]or a lower all-cash bid, as exemplified by the GG house that got 135 bids on Lasner's blog today.



highest contingency bid =~$580k, but they took a $500k all cash bid.</blockquote>
135 bids???</blockquote>


Peak sale at $760K, on the MLS at $386,100.



I'm seeing a lot of that on the foreclosure properties. Usually about 10-20% below market but aggressively below market compared to the wishing price listers. I saw a staged empty property this weekend doing sealed bids that must have had 60+ realtor cards spread out on the kitchen counter top.



There is very little inventory out there you can actually buy below $500K and a lot of buyers in that range.</blockquote>


This is totally true right now. Freedom is right though, if you want the property, just be the offer with the most down. I've seen several REO's go for super cheap (for the current market) because the banks seem to deem highest and best as most down is best, highest doesn't matter. It seems to me that the banks are leaving a lot of money on the table. I could see if there were a number of other properties coming on and escrow falling through would mean an even bigger decline in value, but that's just not the case right now.



The other thing that I don't get is how the appraisals are coming through on some of the $500K or below properties I've seen go contingent iin a matter of days at WTF prices. Yeah, they are a bit nicer than the handful of crap REO's, but not worth 30% plus or more than the REO comps.</blockquote>


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) they know how much inventory is coming, 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.
 
I have heard from a friend whose home fell out of escrow due to a low appraisal and a close friend who is a realtor in my area, appraisals are the problem of the day. The new way that appraisals are ordered, the possibility that those appraising homes have no knowledge of the area and the use of comps that really aren't comps are the problems I am hearing about. I believe the pendulum has swung on appraisals and it sounds like it might have swung too far. A recent sale in Floral Park almost fell through because the appraisal came in so low, all of the comps used were outside of Floral Park despite the fact that there were more recent sales in Floral Park than those used in the appraisal. The buyers had to pay for the second appraisal which came in a bit above the offer and the deal eventually went through. I'm not sure what the answer is, but I guess they'll work out the kinks over the next few years.
 
[quote author="IrvineRenter" date=1247054559][quote author="stepping_up" date=1247049832][quote author="No_Such_Reality" date=1246963083][quote author="usctrojanman29" date=1246960033][quote author="freedomCM" date=1246959142]or a lower all-cash bid, as exemplified by the GG house that got 135 bids on Lasner's blog today.



highest contingency bid =~$580k, but they took a $500k all cash bid.</blockquote>
135 bids???</blockquote>


Peak sale at $760K, on the MLS at $386,100.



I'm seeing a lot of that on the foreclosure properties. Usually about 10-20% below market but aggressively below market compared to the wishing price listers. I saw a staged empty property this weekend doing sealed bids that must have had 60+ realtor cards spread out on the kitchen counter top.



There is very little inventory out there you can actually buy below $500K and a lot of buyers in that range.</blockquote>


This is totally true right now. Freedom is right though, if you want the property, just be the offer with the most down. I've seen several REO's go for super cheap (for the current market) because the banks seem to deem highest and best as most down is best, highest doesn't matter. It seems to me that the banks are leaving a lot of money on the table. I could see if there were a number of other properties coming on and escrow falling through would mean an even bigger decline in value, but that's just not the case right now.



The other thing that I don't get is how the appraisals are coming through on some of the $500K or below properties I've seen go contingent iin a matter of days at WTF prices. Yeah, they are a bit nicer than the handful of crap REO's, but not worth 30% plus or more than the REO comps.</blockquote>


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?
 
[quote author="readytopurchase" date=1247056634][quote author="IrvineRenter" date=1247054559][quote author="stepping_up" date=1247049832][quote author="No_Such_Reality" date=1246963083][quote author="usctrojanman29" date=1246960033][quote author="freedomCM" date=1246959142]or a lower all-cash bid, as exemplified by the GG house that got 135 bids on Lasner's blog today.



highest contingency bid =~$580k, but they took a $500k all cash bid.</blockquote>
135 bids???</blockquote>


Peak sale at $760K, on the MLS at $386,100.



I'm seeing a lot of that on the foreclosure properties. Usually about 10-20% below market but aggressively below market compared to the wishing price listers. I saw a staged empty property this weekend doing sealed bids that must have had 60+ realtor cards spread out on the kitchen counter top.



There is very little inventory out there you can actually buy below $500K and a lot of buyers in that range.</blockquote>


This is totally true right now. Freedom is right though, if you want the property, just be the offer with the most down. I've seen several REO's go for super cheap (for the current market) because the banks seem to deem highest and best as most down is best, highest doesn't matter. It seems to me that the banks are leaving a lot of money on the table. I could see if there were a number of other properties coming on and escrow falling through would mean an even bigger decline in value, but that's just not the case right now.



The other thing that I don't get is how the appraisals are coming through on some of the $500K or below properties I've seen go contingent iin a matter of days at WTF prices. Yeah, they are a bit nicer than the handful of crap REO's, but not worth 30% plus or more than the REO comps.</blockquote>


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>
No, but the banks can if the gov't keeps pumping money into them. Remember, smoke and mirrors only work for so long.
 
[quote author="tmare" date=1247055180]I have heard from a friend whose home fell out of escrow due to a low appraisal and a close friend who is a realtor in my area, appraisals are the problem of the day. The new way that appraisals are ordered, the possibility that those appraising homes have no knowledge of the area and the use of comps that really aren't comps are the problems I am hearing about. I believe the pendulum has swung on appraisals and it sounds like it might have swung too far. A recent sale in Floral Park almost fell through because the appraisal came in so low, all of the comps used were outside of Floral Park despite the fact that there were more recent sales in Floral Park than those used in the appraisal. The buyers had to pay for the second appraisal which came in a bit above the offer and the deal eventually went through. I'm not sure what the answer is, but I guess they'll work out the kinks over the next few years.</blockquote>


<em>*cringe*</em> I hate to agree to the NAR/CAR mantra of anything, but for the most part I am going to agree with them on this... to a point. Appraisal services are a crap shoot, you might get an appraiser that knows the area, or you might not. But, you are also guaranteed not to get an appraiser that will "hit the number". In principle, it is the right thing to do, just the wrong way to go about it. Approved and a black balled appraiser list would solve this. They are just too uppity to do it this way, and too lazy to fight it.



Allow me to share a story. So the builder I worked for also owned a title company, and the title co. also started an appraisal service co. They would charge $375, but paid the appraiser $325 for a moderately priced home and more if the value was higher, and collect $50 in the process. The pitch was my appraisers would get more business because they would get automated orders from the other companies that used the service, and supposedly make more money on volume rather than charging $375 themselves. Well, to be a team player, I ordered an appraisal from them on a new home that was not yet completed. It came back at $429k, when the comps in our tract all sold for roughly $500k. I looked at the appraisal, and they pulled four comps from outside tracts and only one from ours. WTF? I called and bitched, you pull comps from an inferior. cheaper, and worse location than the 20 homes we sold in the last 3 months at $500k. Are you new? They obliged, and added three comps from our tract and hit the number needed (This is different from hitting a number that doesn't exist, there were comps to support the value at the time. Yes, they were overpriced but they were selling for that price). Now, in new homes, the appraiser goes out there and takes pics of the home before it is completed, and once it is completed a form to prove that it has been completed is the 442, where they shoot pics of the completed product and sign off that everything has been installed like the flooring. My processor and I called and called asking when we would get the 442, and all we would get is the run around. Turns out this appraisal firm has never done new homes, and hasn't a clue what the hell a 442 is. FAWK! We need this to close to make the quarter end numbers (welcome to my world at the time), and I say F it, call my appraiser and see if he can get us an appraisal tomorrow with the 442. He does, and the team member/title co. eats the cost of the original appraisal. After that, we could request the appraiser that knew the area and the product. This really is a deal killer if the buyer is responsible for the cost of the appraisal. If that would happen to me, I better really love the place, otherwise I say F it, and move on.



This is why areas like Floral Park, N. Tustin, fringes of Villa Park, will get whacked on value by those that have no clue on what is really going on. Just like the banks will discount a Floral Park home by 60% plus at the foreclosure auction because it is Santa Ana. Well... it is Santa Ana, and the comps south of 17th are off by 60%, so it must be true of those north of 17th, right? Just do an approved/black balled appraiser list, the banks have the info to find out who is "hitting the number" and they should be able to go after them for it and get them to lose their license. Pretty simple, threaten them with fines, black balling, and losing their business and you have the solution. But, this is what happens when you have politicians making these decisions.
 
[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.
 
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