Competing Against Cash Offer Part 2

Competing Against Cash Offers Part 2
Waiving the Appraisal Contingency
          Ron Benning, Broker
             CBRE # 01058898

In part 1 we discussed why cash offers are often preferred to financed offers this was primarily because they eliminate a lot of the uncertainty from your offer. We also discussed the benefits of having no loan contingency. In this article we are going to discuss how eliminating the appraisal contingency can make your offer much more competitive.

Often when people hear  about this strategy they are initially pretty worried about what can go wrong, but in most cases there is very little risk compared to the additional strength this strategy ads to your offer (particularly if you are putting down more than 25 percent, More on that later). When using this strategy We will run comps upfront to make sure you are paying a price that is likely to be justifiable when the appraisal is done.

The appraisal contingency is normally 17 days. This date coincides with the buyers investigation period. Until all contingencies are removed your deposit is never at risk so removing this contingency in the right circumstances exposes you to less risk than you may have thought.

After your initial walk through, if the property has no major issues, we order the appraisal right away. By doing this we get the appraisal back before your other contingencies need to be removed.

So how does this work? The bank will loan no more than 75 percent of the appraised value on a multi family loan. Let’s look at this using an example. 
Let’s say you are buying a property for $300,000 with 25 percent down. What happens if the appraisal comes in at $290,000?

In this example, the amount the lender would lend you is $217,500. If the property had appraised at $300,000 the lender would lend you $225,000. If you waived the appraisal contingency you would need to bring in the additional $7,500 difference but this also would lower your payment by about $30-35 a month because your loan would be smaller.

If you were putting down 30% or more, in this example, there would be no change to your down payment or payment at all even if the property appraised at $290,000 because your loan would have already been $210,000 to start with which is well below the maximum loan based on the appraisal price of $217,500 that the lender would be willing to make. So in this example the property could appraise for as little as $280,000 and it would still make absolutely no difference to your down payment or monthly payment.  The idea of paying more than the appraised price can be difficult for buyers to grasp, but it happens frequently in competitive markets. Also,if you were happy with the terms of the deal before the appraisal was done what difference does it really make?

If the appraisal comes in really low you can back out of the transaction based on other contingencies provided you are still within other contingency deadlines. We hate to do this, but if the appraisal comes in ridiculously low we may have no other choice.

By understanding the benefits versus the risks of this strategy upfront this technique can help us to write much more competitive offers for you. Ask us about this strategy when we talk and we can give you additional insight into this strategy.

I can be reached at 916 730 3846
Ron Benning

Would you like to buy some Cherries? This simple question became the starting point for Ron Benning’s career in sales. He was only eight years old and was trying to earn enough money to buy a G.I. Joe. His parents wanted him to learn the value of a dollar & decided to have him save his own money to buy it. Since they lived near several cherry orchards, Ron quickly put two and two together. By going door-to-door and selling the cherries, he earned more than enough money to purchase the toy on the very first day. People that know Ron will often joke that he was born to succeed because he had a tremendous work ethic. But this story is more than just a cute anecdote from his childhood. It’s a lesson in the value of a hard day’s work. Ron embarked on a career in real estate at the age of 21. After four years in the industry, he opened up his own real estate firm. Ron grew his company to 95 agents and two offices before realizing that working with clients is what he enjoyed the most. Now, 30 years after his first business venture (selling cherries), Ron states, "I am finally doing what I was meant to do... Helping local families to realize their real estate dreams.

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