By Living Room Realty, April 29, 2021
Top Offer Term Trend in the Portland Metro Market- Springtime 2021
In addition to offering double-digit percentages over asking prices on homes in the Portland Metro area, buyers are taking on increasing risks in order to get an accepted offer on a home. It’s been common practice for buyers to offer to purchase homes in as-is condition and accepting risks around what they’ll have to do to repair the home after they get keys, but there is a new term found in many offers that is currently getting all of the attention.
Appraisal Gap Coverage.
Many sellers are now expecting that buyers will assume the risk if the value of the appraisal comes in lower than the agreed-upon purchase price. In the event of a low appraisal, the buyer will need to bring cash in addition to their downpayment to cover the delta between the price and the appraised value. *Note, appraisers work for banks and are by their nature, conservative. Their job is to demonstrate a home’s value on paper.
In the past, a low appraisal was typically a moment where the buyer and seller might renegotiate the price so that both sides give a little to be able to proceed towards closing. However, sellers are almost always getting the buyers to accept the risk of a low appraisal on their own. In fact, sellers are evaluating buyer’s cash resources even more scrupulously if there is the perceived risk the home might not appraisal completely.
Sellers are asking questions such as
- Are any buyers bringing more than 20% down and could potentially qualify for an appraisal waiver?
- Are any buyers willing to take on some or all of the risk for this?
- or, better yet, are there cash offers that require no appraisal at all?
*The sellers might even request proof of funds if large commitments have been made by buyers and the risk great enough to the sellers.
Is it possible to get an offer accepted without access to large amounts of cash to address this issue?
Sure, if a buyer is willing to take on some serious risks. Buyers may work with their agents to analyze comparable properties to gain the confidence they need to make specific commitments on appraisal gap coverage in their offers. Realtors, however, are NOT appraisers and should be assisting with this research with extreme caution.
The appraisal analysis is as much art as it is science and there is risk in not knowing for sure what the result of the appraisal will really be until the report has been submitted by the Appraiser. This typically occurs just the week prior to the closing date and at this point, the buyer has paid for inspections and has invested emotionally into the home. In extreme cases, the buyer may have offered to release some or all of their earnest money to the seller as a good faith commitment to overcoming any obstacles that have arisen during the transaction. So, there could be very real things on the line for the buyers. If the amount of additional cash needed is more than the buyer has and the seller is not willing to negotiate on price, the transaction may have to be terminated.
It’s critical that buyers are up to speed on what makes a great and attractive offer to sellers in order to find success in this extreme seller’s market, in addition to a generous price.
Good luck out there, buyers. Better yet, be informed and honest with yourself (and your agent) about how much risk you’re able and willing to take on.
-Virginia
