Or, do you think the sellers should lower their asking price?
imho, I think the sellers have every right to ask whatever they want for it. That is their choice. It would be my guess that they are really in no hurry to sell. Do they maybe have it rented or something, or have someone willing to live in it and take care of the expenses of the utilities, and yard care?

I don't think they should be 'expected' to have to meet anyone on middle ground.

If the couple is really wanting it, then once they sell their 2 houses, chances are the house will still be there when they are better suited to buy it at the seller's asking price.

I agree with Chemocurl - no one "should* do anything here. The seller is trying to make the sale price as high as possible; the buyer is trying to make it as low as possible. Perfectly reasonable.

The buyer is betting that the seller will be afraid to lose the sale and will lower the price. (It doesn't really matter whether the buyer could come up with the extra down payment, because the buyer isn't willing to do so.) The seller is betting that the buyer likes the house enough to come up with the extra money.

Personally, if I were the buyer, I wouldn't be looking for middle ground. I'd figure that we're in a recession (or maybe a depression:), home values are down, there's lots of inventory, it's a good time to buy. I'd be looking at the appraisal to see if it uses reasonable comps, and if it does, I'd be wondering why in the world the seller thinks s/he can get $50,000 more than market value. If the house was uniquely suited to my family's needs, I might offer a bit more than market value, but not that much.

If I were the seller and I needed to sell (as opposed to being willing to sell for a certain price), I would try to look at the comps and figure out a fair market value for the house without taking into account things like what I paid for the house, what I put into the house, what the house was worth a year or two ago, what the house might be worth if situated elsewhere, or how much I loved the house. The buyer won't care about any of those things, nor should s/he.

"The seller is asking $160,000 for a house that is appraised at $109,000. The house would sell easily for $200,000 in many markets, but this is a small town."

The house may easily sell for well more than $200,000 in some markets, but that has nothing more to do with the price of tea in China than whether or not I'm wearing underwear.

"The seller needs to move to a larger town where the housing prices are higher. They will get less house for more money."

Where the seller chooses to move and how much less the seller will get when becoming a buyer in that new area is not this buyer's problem. The buyer here should not be expected to carry any of the burden of what anyone can buy in any other location. Period.

It is not at all uncommon for there to be a clause in a purchase agreement that the home must appraise for at least the agreed-upon sale price. If the seller is asking $160,000 but it's only appraising for $109,000, then the seller is way off base for expecting anyone to pay $160,000.

There is no middle ground in this situation. The sellers can ask whatever they want for their house, it doesnt mean its worth the money. Its like anything else, does ANYONE want to pay more for something than its worth? This is why the bank is requiring more of a downpayment. They dont want to give a mortgage on something that isnt worth the money. The seller needs to come down to the appraised value,or risk loosing the buyer. IMHO, the buyers shouldnt be trying to come up with more money to buy a house that isnt worth the money. This is the whole reason behind appraisals, (to make sure the house is worth the mortgage price)

What the house is worth in another area has no relevance, what the sellers are going to pay for a new home in another area, has no relevance.

How long has the house been on the market,is it possible the appraisal is incorrect?

Well, if it was my "extra house", I would lower the price to get it sold.

But, in the other shoes, like others said, they are under no obligation to lower their expectation.

I just want to sell my house, and even with lowering the price, the market stinks here, and I haven't been able to sell yet.

Moni

Face it...the bank would be insane to loan more money on the house than what it's worth, and the buyers would also be foolish to buy something that is overpriced.

Worth is NOT determined by the structure alone. The location and comparable sales in the area account for a realistic evaluation.

You don't know anything about the liens (first mortgage, etc) that may be on this house. Sounds, on the surface, that the sellers are asking what they need to get (for existing liens or to purchase next home) instead of fair value.
Unrealistic - yes.

I would tell the buyers to walk away and stop stressing over something that is beyond their control.

I have a question. What kind of appraisal are you talking about? Is it the tax appraisal? They're traditionally lower than the actual market value of the house, if that's the 'appraisal' you're speaking about, then it means nothing, really, in the sale of a home--a home can sell for whatever the sellers and buyers agree it's worth. Did the 'appraisal' come from a real estate agent, who was trying to get the listing? Sometimes they want to low-ball the price to encourage the sale, so they can quickly move the property and get their commission. In that case, I'd probably want another opinion, from another expert--were I the buyer or seller, just to be on the safe side. Is the appraisal by a lending institution? if so, then there's a problem--a big one. If that's all the house is deemed to be worth, in it's current condition, in it's market, then anyone would be crazy to pay 1.5 times the value of the house. If that's the case, I think the sellers are going to have a very difficult time selling to anyone, for anything like what they want for the house. And if I were the buyer, and I found a house that overpriced, I'd run from the deal and find something where the sellers were being more reasonable. Obviously a house listed for that low price is going cheaply, and isn't likely to attract the high end buyer who can actually afford to put down close to half the selling price--if they had that kind of money, why would they buy a lower-end house (I may be evaluating this based on my own area--160,000 here gets you something in the worst side of town. 109,000 would be in a dangerous ghetto.)

Maybe it's just not the right time for the sellers to sell? If they must have that much money for their home to make their dreams happen, it may be that they need to put their dreams on the back burner until they've either saved a bit more, or the market straightens out. Or maybe they need to sell for a reasonable price, and find some other way to get the $$$ they need. The buyers? well, it would be pretty short-sighted to buy anything that was being sold for way, way more than it's supposedly worth. It could take them 10 years or more for the market to catch up with the price being asked for that house (maybe more, maybe it will NEVER happen). And in the meantime, they'd be living a very frugal lifestyle, in a house that they probably wouldn't be able to sell for years, because they'd have to sell short.

Seems to me--while this is no 'should' or 'should not' in this case, sounds like the sort of situation that's heading to an impasse, where it's going to be next to impossible for everyone to meet in the middle, and no one is going to win.

If the buyer decides to buy, they would have to come up with $51,000 (the difference between the appraised price and the asking price). Banks/mortgage companies won't lend more than the appraised value. Then they'd have to have the down payment on $109.000. That's another $10,000 or more.

Bet that house will be on the market a while.

Depends on how bad they want to sell it. I have a right to ask any price I want. One of my sayings is, "everything I have is for sale". A neighbor knowing how much I love my home....asked, would you sell your home? I said sure if the price is right.

I think I'm missing something here?

The prospective buyers now say they can't make the down payment on this house because lenders loan on the appraised value which makes the down payment too much for them.

The asking price was $160K, yes? And it appraised for less, yes?

So why can't the buyers make the down payment on a house that should have less of a down payment based on a lower appraised value?

Lindsey said it like it is.

It doesn't matter if my home is worth $500,000 in Chicago. If its stuck to the ground here in little town mid-west and only worth 150,000 because of the competition then it would be hard to find a new owner at the higher price.
Depending on the location, I would go down quite a bit on the asking price myself.
Like Monica said, the buyers should walk away (and find a reasonable home.)

Tally, yes, you're missing something.

The house is being sold for 160,000. But the bank will only approve it for 109,000 (if that's who did the appraisal, I'm still not sure). That doesn't mean the sellers have to drop their price--it means the buyers have to come up with the difference IN CASH, if they want the sale to go through. That means they need the regular downpayment on 109,000 (probably about $20,000+), PLUS 51,000 (difference between selling price and appraisal), PLUS the usual closing costs--which can be another $2,000-10,000, depending upon the transaction, points, etc.

Looks to me, as if buyers wanting this house, would need to have close to 100,000 to complete the transaction. If they HAD that kind of money, they probably wouldn't be looking at such an inexpensive house in the first place

Thanks Azzalea.

I assumed that if the buyers were looking at this price range, they had taken into consideration all aspects of the financial situation and everything was OK up to that point.

What I didn't understand was the specific comment that because the house appraised for less, now they couldn't come up with the down payment.

If it's simply a matter of they can't afford any of it, including the cash differential, then yes I understand they just can't afford that price.

But the bank will only approve it for 109,000

Approve it because of the appraised value of the home....or the appraised lending capability of the buyers?

Banks not looking at closely enough at prospective lenders is a huge part of the financial mess this country is in now.

I couldn't say it better than Joann did.

This house will sell for what it can sell for in that area and not a penny more, to the person who wants it and can pay for it and not a penny less. In this economy, that is pretty much the extent of how it's going to work.

There are many gorgeous homes which can't sell under any circumstances these days - everyone has to be extremely realistic when getting into real estate these days - especially researching to find out what "realistic" means for that specific area AND specific neighborhood, due to it's immediate history of selling. It's immediate selling history is all that counts right now.

The sellers want more for their house than the house is worth.

The bank will only approve the financing on the 109,000 because based on comps in the area, that is all the house is worth.

Why would anyone pay more for something than it is worth?

As someone else said, the sellers circumstances, what they can buy elsewhere, what it would be worth somewhere else, what color underwear they are wearing is NOT the buyers concern or problem. If the house is not worth what they want to sell it for, then they will be sitting in that house for a very long time.

If the sellers want to sell, they need to lowere their price to at least appraised value. If not, the buyers should just move on down the road.

It is beyond me, especially in this market, why anyone would pay more than the appraised value/worth.

Wow! Thanks for all the input. Keep it coming. This is a real learning experience and more informative than trying to follow an emotion filled conversation.

The $109,000 is a county tax appraisal. I think a realtor's appraisal would be somewhat higher. The house is new on the market so it will be interesting to see how long it takes to sell and for what price.

Leslie/KS

WHile I'm not sure exactly what a 'county tax appraisal' is - unless it is what the county taxes the residence at - which sometimes is not the 'real estate appaisal' price.. Again, the asking price is 160 and the buyers can only get a loan for 109 - and if that's their offer - they can make it - but the seller can either make a counter offer or let their offer expire.. I'm like the others, wondering if the 160 is the real value for the home given local comparables...

The county tax appraisal has nothing to do with the market value of the home. That changes everything.

I have also never heard of a bank using a tax appraisal to determine the market value of the house. Something is not right here. It sounds like the house could very well be worth $160,000

They need to hire an appraiser which the bank will do anyway before they approve the loan. They will NOT approve a loan until they have an appraisal from a licensed appraiser.

If the buyer and sell come to an agreement on a price and the buyer then goes to the bank for financing, the bank will have it appraised. The house must appraise for at least the selling price in order for the bank to loan on that house.

It sounds to me that they haven't taken all the steps yet and therefore they are arguing over nothing.

I don't know about your neck of the woods, Leslie...but in my State...the "tax appraisal" value represents 70% of the appraised [independent bank appraisal]...overall worth/value...of a property as seen in a comparative market. That being said...the sales figure of $160,000 is right on the nose....i.e. 70% of $160,000 is $109,000.

To carry it a step farther...most banks will only lend 70% of the actual appraised value of a property...no matter how good/high the buyer's credit report. So...in this case...for the seller to complete a sale with this particular buyer...the buyer has no choice but to make up the cash difference of $51,000 between the selling price and the loan amount offered by the bank. Azzalea's reply is quite accurate.

IMO...the house is reasonably priced...but that doesn't mean that the price will be agreeable to all buyers. If the seller won't [or can't] drop the selling price below what the property is worth...then the potential buyer will have to seek another, more affordable property for themselves. Or...considering that the property is reasonably priced...perhaps this potential buyer may wish to seek additional financing in the form of a second mortgage to meet the selling demands. There are a lot of creative financing arrangements that can be made in this situation. IMO...it's up to the buyer's realtor...or the buyers themselves...to explore other financing tools if they really want the property.

Anne

In Pa and Nj, the counties do the appraisals. The percentage of value of the property is determined by the counties.

Banks do not loan on county appraisal values because appraisals are not usually done on a scheduled basis. They are usually only done when a building permit or property sale takes place.

Any mortgage company or bank will either work with comparable sales or send out their own appraiser, who works off both comparables and usually a personal look at the property - usally a drive-by.

Again, from what I read in the OP...either the property is not deemed worth more than a 109,000 loan or the potential buyers are not seen on a loan application as being able to carry a loan higher than the 109,000. Banks don't want another foreclosure on the horizon, especially on an overpriced house.

Sounds more like an unrealistic seller found the uneducated buyer they need to buy an overpriced house.

"...most banks will only lend 70% of the actual appraised value of a property..."

Gosh, where do you live? I think it's fairly standard across the United States (and I know it is in California) for banks to routinely lend 80% of the appraised value. If the buyer has less than 20% as a down payment, they will have to have mortgage insurance, which means banks will lend more than 80% of the appraised value. In fact, buyers can finance 100% of the sales price of a home.

Lindey is right about the 80% and PMI.

I don't know how easy it would be to get 100% in this market anymore though. They banks/mortgage companies have gotten much stricter in their guidelines and requirements for a loan. Not saying it can't be done, but they are just not as eager to do that anymore, at least around here.

I've seen suggested solutions for situations like this on the Buying and Selling forum. Can't remember exactly what, but something like other costs were covered by the seller, etc.

I think the seller should not try to sell to a family member if they want the full asking price (if that's the case).

When tax value is a lot more than a mortgage companies appraisal, I think we should be able to sue for some of our property taxes back. The city over values our homes, can't get anywhere near what they appraise at.

In my state the tax value must be within 10% of the fair market value. There is some play in market fluctuations, but tax value is a very good indicator in many areas of my state. But that varies from place to place.

The house is worth no more than what a buyer will pay for it. The OP mentioned this as a family situation? I hope it's not a family member buying from another. Talk about hard feelings in the making!

Value can also be determined by perks. One of my favorite phrases was a real estate buyer who once advised me go in with the philosophy of YOUR price, MY terms. Maybe pay more but seller carries contract at low to no interest. Include furnishings? Pay taxes? New appliances?

I would like to drop my house in downtown LA or NYC and sell it. That would raise it's value tremendously. And I'd even give up my lot! But if I dropped my house in a swamp somewhere, it could lower the value tremendously too.

I'm wondering why the buyers don't just get something that appraises in line with what they can afford as a downpayment.

My guess is that they really like the $160,000 house.
I'd guess they cannot find anything that they like that appraises for what they can afford.

Possibly there are no other houses to even be considered in the small town.
Possibly the house has many upgrades, and is nicely decorated and in near mint condition.
Possibly it is like new inside and out, and in move in condition. New roof? New furnace/AC? New kitchen appliances? New coutertops, carpet, tile, hardwood? Garage, better parking?
Possibly it is in a nice quiet neighborhood, or a dead end street as opposed to others being on the main drag.
Possibly the lot is nice, with room for what they want, whereas other houses are are on lots that are just too small.
Possibly it is nicely landscaped, where most others are not.
Possibly the selling relative for one reason or another, just does not want to sell to the buying relative.
Possibly the seller is in absolutely no hurry to sell.

I'm wondering how many here, could go and find a home of equal value, in their city, town, rural area, etc, that they would like as well or better than their own home.

I sincerely doubt if I could find anything at all I would care to have any better than my place, regardless of how much could be spent.

"Gosh, where do you live?"

Litchfield County, Connecticut

Banks here tend to be a bit more conservative/cautious these days. During the real estate boom of the early to mid '80s...buyers could name their terms and many banks offered mortgages with 10% [or less] down...especially if the property was FHA approved. After they were burned with their sweetheart deals...lending tightened up considerably...and in today's market...most reliable banks in this area offer no more than 70% of appraised value. Other types of lending institutions here may be a bit more "friendly"...but their interests rates are higher. Personally...I'd rather have the lower interest rate.

Anne

Get a second appraisal. The first one may have been 'low balled'. You did not state the source of the appraisal in question. make sure the appraisal was made by a certified appraiser.

In your first post, 3 numbers were presented:

1. Appraised at $109,000

2. Asking: @160,000

3. Probably price/value in another market (town): $200,000

These are huge differences; One or all of these numbers are off the mark. It was said that the bank would give a loan based on the appriased value. Ask the bank: What appraisal are they accepting? Would they accept a neutral 3rd party appaiser, or are they going by the tax roles? If the bank seems unreasonable, talk to another instution.

You are asking us to recommend a reasonable price. We can not do that. We have not seen or inspected the property, or have any knowledge of location, and do not know the source of the appriasal. We do not even know if it is a 1, 2, or 3 bedroom house. But for the sake of argument, the selling price traditionaly would be between $109,000 and $160,000. Expect to pay at least 75% of the asking price, If the asking price is unreasonable, offer what you deem is a reasonable amount and if the sellers balk, walk away while informing the sellers they will not get that kind of money, but leave the door open for discussion if the seller in the future decides to lower his price.

Here's the deal. If the price is outlandishly high, you don't want to buy at that level. If it gets sold to someone else, ok then. They will have paid too much, and better them than you. Chances are it will not sell at an outrageous price and there will be a second chance.

Again, get decent appriasal. You need to know for sure if the house is a good buy at $160,000. If it is, maybe the present prospective buyer can not afford the house.

I think a key word has been overlooked here.
FISBO - For sale by owner, no real estate professional involved in sale or estimating sale value of the house.

IMO, scenario is:
Couple is relocating, needs to get $160,000 out of their house to buy new one in another city. So, they price the house according to what they need, not it's value.
They decide to sell it themselves, because they need every $$ out of the sale.

An equally naive buyer comes along, and likes the house - just what they want....and goes to a bank/mortgage company for a mortgage.
They are told that the maximum loan they can get is 109,000.

Two parties trying to complete a transaction...and neither knows anything about buying or selling real estate.

Here's another thought. Maybe the seller's bought the house during the boom and OWE $160,000 on it. Things have changed drastically the last couple of years.

Yes, Patti...I mentioned that in an earlier post. They either owe the money to clear the title, or they need it to buy the new one. Either way..it looks like amateurs not knowing how to price a house for sale.

WHOA! The whole story changed with the second entry from the OP.

The $109,000 is a county tax appraisal.

This is NOT an appraisal, this is an assessed value and has NOTHING to do with an actual appraisal. Did the buyer actually make an offer and apply for a mortgage where they sent out an apprasier? If not, then none of the information you posted is relevant to them obtaining a mortgage.

Why would ANYONE pay more for a house than it is worth? What's the point of an appraisal then?

Why would ANYONE pay more for a house than it is worth?
Because they like it and they want it, or they need a house and cannot find anything else they like. The house has several features that are important to them for one reason or another.
The houses that are priced closer to the appraised price might have several drawbacks.

What's the point of an appraisal then?
The appraisal is only needed if the buyer will be borrowing money to purchase the property. The lender will only loan a certain percentage of what a property is worth, so they don't get stuck with an overpriced property in the event the buyer defaults, and loses it to foreclosure.

I have both bought and sold property without an appraisal, all of it being cash transactions.

Sue

Sue (aka ChemoCurl) is correct about an appraisal only really coming into play when money is loaned to purchase the property. The appraisal will be paid for by the potential buyer, and they will be entitled to a copy of it, but the purpose of the appraisal is to protect the bank that will be lending the money.

The sellers are amateurs as am I, the OP, who didn't give correct info because as I said I don't understand all this. The house isn't being sold and bought by family members. A family member is the seller, but I like this 3rd party reference of seller and buyer. It makes the comments less personal. The sellers have paid off the house..no money owed on it.
The $109,000 is the county's assesed value for tax purposes..not an appraisal as was pointed out. No real estate appraisal has been done, but needs to be, I see.

Here's a description from the ad: approx. 2000 sq. ft. plus full basement..all brick ranch, low maintenance exterior..4 BR total (2 up, 2 down)..2 1/2 bath total..main floor laundry, office, living room, family room..eat in kitchen plus dining room..central air & heat..private water well, underground sprinklers..attached dbl. car garage..small shed plus large shop..fenced yard plus 2 patios..corner lot.

And, yes, there are cosmetic upgrades as well as plumbing, wiring, breaker box, AC, storm windows, wrapped exterior, new roof, etc. Now that I re-read the ad I see that it could say 2 family rooms, 1 up & 1 down, as that's what the house has.

Thanks again for the input. I'm learning and passing it on..ha!

Leslie/KS

No real estate appraisal has been done, but needs to be, I see.
I don't see where it would be absolutely necessary at this point, at least not by the seller.

I would think that the lender would need to do the appraisal, as they would not loan money on someone elses appraisal.

You might want to check out the link below for help through the FSBO process.

Here is a link that might be useful: Buying and Selling Homes

You could also go to Zillow.com and type in the address. It will give you an estimated price of the homes worth based on what has sold, what is for sale, and the average price per square foot. Then you can put in the upgrades and features and it will give you an estimated price.

Try it.

The lender will still require an appraisal if there is to be a loan but at least it will answer your question as to the estimated worth of the home.

Here is a link that might be useful: Zillow

This is getting very complicated and it doesnt need to be.

The buyers need to forget they know anything about the 109,000 assessed value. It is confusing them and means nothing in regard to the price of the house.

They will need to come up with 20% of the MORTGAGED amount in order to avoid PMI.

The only reason they would have to come up with more money is if the house "APPRAISED" for less than the mortgaged amount and they still want to purchase it. Then they would have to make up the difference between the mortgaged amount and the appraisal. (The bank will only let them borrow what the house is worth, ie: THE APPRAISED VALUE, NOT the ASSESSED VALUE.

Why would ANYONE pay more for a house than it is worth?
Because they like it and they want it, or they need a house and cannot find anything else they like. The house has several features that are important to them for one reason or another.
The houses that are priced closer to the appraised price might have several drawbacks.

Chemocurl, then the best thing to do would be to negotiate for the "appraised value". Appraisals are there to protect the buyer and can be used even if there is a cash sale. (and should be used)

Its just silly to pay more for something than it is worth unless its so unusual you'll never find anything else like it again and an appraiser couldnt come up with an accurate value because of it. On top of that, someone who is struggling to come up with a downpayment is NOT in a position to over pay for something because "they like it and they want it". Thats just irresponsible.

Yes, this is getting more complicated than it needs to be, mostly because of terminology.

Assessed value is determined by the county/city and is used to calculate the amount of taxes owed on the property. It may not reflect things like a remodeled kitchen, elaborate landscaping, or brand new paint and carpeting.

Appraised value is determined by a bank or lending institution at the time the property is about to be sold. An appraisal is not needed for a cash sale. Typically, the bank appraiser only looks at the property to determine if the house is at least worth the amount the buyers are asking to borrow. The bank doesn't really care if the house is worth $100,000 more than the mortgage amount.

Market value is determined by the market, in other words, how much the house and property would sell for in the current market. This can change weekly or even daily in some markets. Market value reflects much more than just how many bedrooms and baths the house has.

The bottom line in any real estate transaction is that the property will sell for the price the market will bear. Sometimes this is way below the assessed value, sometimes it is way above the assessed value. And often a home will sell for much more or less than the market value. The final transaction can be all cash or part cash (down payment) and part mortgage. The sellers don't "care" where the money comes from---they still get the agreed upon price.

Many factors go into pricing a property for sale, and most FSBO sellers aren't familiar enough with those factors to accurately price their property for a quick sale. That's fine if they don't have to sell right away, but if they do need to sell right away, they will have to price the property competitively.

None of this, however, has anything to do with how much a particular buyer should or can pay for the property. An offer to buy a property is more than just the price. It also encompasses the terms of the contract, which can have many restrictions that the seller is under no obligation to accept. A buyer may pay more than market value for a home for many reasons.

In this particular scenario, it sounds like the sellers may not have done any kind of market analysis to determine the selling price of their home. And the buyers are looking at homes that are out of their price range.

When I was a real estate agent many years ago, I was told to never show homes to unqualified buyers. In other words, I wouldn't show a $200,000 home to buyers who could afford only a $150,000 home. It's too easy for buyers to fall in love with a house they can't afford and then compare every house they see after that to the expensive one.