Ugh...WE ARE THE BUYERS!

The stock market crashed in 2008 because too many had people had taken on loans they couldn't afford. Lenders relaxed their strict lending standards to extend credit to people who were less than qualified. This drove up housing prices to levels that many could not otherwise afford, nor could the housing market support in inventory and value.

Anyway, I'm tired of explaining this - We've come to accept that we are losing our good faith deposit because we refuse to buy a house that is over priced.

Oh.... you believe Now you can’t afford the loan you are taking on ? you didn’t mention that. That sounds like quite a different issue, and one that has nothing to do with your r.e. Agent.

If it bothers you, terminate the contract and lose your deposit.

@gardengrlz - I used to do residential real estate appraisals. It's been many, many years, but I would imagine the principles are the same. You say the appraiser "did not use any comps within the current neighborhood, which had homes selling $50k lower than what the seller was asking in the past 12 months (built by same builder, similar sq footage, amenities, etc.)." Yes, an appraisal is supposed to use comps that are within one mile of the subject property. BUT, the comps need to have closed escrow within six months of the appraisal. If there were comps more than one mile away that are similar in age, size, construction, etc., that closed within six months, those are going to be preferable to the lending bank than comps within one mile that closed 12 months (or longer) ago.

Well after you close on the house at that price then your house become a comp for the neighborhood so future sellers can use your house as a comp to price theirs so it is also possible prices could be going up. Were the houses used in the appraisal within a 5 mile radius of the house you bought? Is the house you bought one with more upgrades than the others in the neighborhood. Did the other ones need work, were they outdated, bad location within the neighborhood etc.

@gardengrlz I used to work in real estate lending, although it's been 30 years so I'm not exactly up on all the latest. At any rate, I understand what you're concerned about.

I don't know what accepted practices are now about appraisals with comp issues, and it may differ depending on whether you're going through a bank or some other type of mortgage lender. But, back in the day, we only approved loans with an appraisal like this if the appraiser could prove there was something different about the house that made it imperative to go further afield for comps. Much larger house or lot than the rest of the neighborhood, for instance.

But it doesn't sound like that's the case with your house. Have you talked to your lender about this? They don't want to be on the hook for an overpriced house any more than you do. As a last resort I would suggest you call and talk to them directly and see if they can tell you why they're allowing this appraisal. If there has been an error then you're going to be up against renegotiating the contract, but if it were me I would want to hear what the lender has to say anyway especially if I might want to use them to purchase a different property.

You are right to remember the housing crisis and want nothing to do with being upside down on this house. I know forfeiting the deposit is going to be painful, but I think you will sleep better at night not paying more than the house is worth.

What does your agent think is the market value? Ask him/her to back up this opinion.

I am wondering where the OP found what the values of the other houses in the neighborhood are. That might explain some of the confusion as to price.

At least buyer's remorse is better handled before the close, rather than after.

Ok, I agree with a lot of the comments, but will answer your actual question based on my own experience with an inaccurate appraisal.

We had the opposite problem (appraisal too low, couldn't make up the difference). We were absolutely 100% sure the appraiser did not do a good job. We researched comps, and our mortgage company and realtors agreed with us.

We looked into every possible recourse we had. There were three options - challenge the appraisal, accept the appraisal, or back out. Challenging the appraisal was not recommended to us because it almost never works. Accepting the appraisal was not an option for us. So we backed out BUT quickly opened a loan application with another loan company. Since it was a new loan company they need a new appraiser. That appraisal came in at the right amount for us, so we were able to proceed with the sale.

This did push us back on our loan contingency date, but sellers we're ok with that. So, if you're sure the appraisal is wrong, and you have time in your escrow to do so, you can open another loan application with a new company. You will have to pay another appraisal fee though, so I would be very sure.

You have no idea what your market will be like at the time you sell. No one does, or they’d all be clairvoyant millionaires. So I’d not obsess about that future event now. Or, is this a flip, and you plan to sell in 4 months? But I’ve never heard of a flipper paying full asking price.

If this is not a flip, then it sounds like you are feeling you cannot afford this house? If that is the case, then you must walk away. Though I cannot figure out how you’d make an offer to purchase for an amount you cannot afford, as most everyone needs pre-approval on a mortgage to make an offer, so the lender bank would have caught that you are asking for a mortgage you can’t afford. So, I am stumped on what your issue is.

I have only heard of paying full asking price on homes in areas like San Francisco or Seattle, where supply is really a problem. But those areas don’t have homes in the $300ks like you described.

I think you need to walk away, eat the earnest money, see if you maybe can get some of it back, sometimes you can. If you don’t want to do that, then go ahead with this purchase and don’t worry about the appraisal. When you go to sell, you’ll get another appraisal.

Buyers remorse, happens all the time. Walk away, your deposit, if you even lose it, will be nothing compared to what you will lose on the house. The housing market is in real trouble.

“The housing market is in real trouble.”

@wacokid - depends on the region. I have a friend who is a realtor in the southern Florida area. She sold more homes in the last month than she had in the previous entire year. She can’t keep up with demand. She even had a few people buying from the internet, sight unseen.

https://therealdeal.com/miami/2020/06/23/south-florida-home-sales-cut-in-half-in-may/

Right.

I also wonder if this is a bit of buyers remorse! We recently (2018) bought a bigger house and I was panicking about the price, the seemingly inflated market, and the appraisal (about $5k above the price we offered). We offered the asking price--in my area we had already lost two previous great houses because our offers were not enough over asking, so offering asking price was a bit risky in itself. But the seller accepted and then I felt stuck because this house didn't feel like a great house, it felt like an okay house. And it's fine, the place is fine, the neighborhood is nice but it's not the WOW house that I'd secretly like to have. I suffered terrible buyers remorse and continued to look at listings and find houses I liked better. But here we are and it's a very comfortable house.

I agree with the advice to ask questions about the appraisal, understand what's behind it. Maybe your house is really great! The house across the street from us--about same sq ft, 3 car garage instead of 2 car, pool, completely updated inside--sold for almost $100K more than the house we bought and they were sale around the same time. Both homes were in different condition--ours had dated/cracked ceilings, floors that needed work, dated interior choices, and electrical updating--the home across the street seemed impeccable.

I found it very challenging to remain level headed during the house search, nearly every house wasn't right. We lost out on the two that would have been great. We couldn't agree on others that DH really liked. I guess I'm saying that maybe you're panicking a bit, and getting more insight into the appraisal might be helpful. It could be totally fine!

@wacokid - my friend is more in the Jupiter/Palm Beach area, not Miami, and selling houses, not the condos discussed in the article. Even in my area—1400 miles from FL—houses with land are selling fast. Like I said, it depends on the region. Be skeptical if you want, it doesn’t change things.

Back to topic please.

@wacokid The article you sited confuses because it talks about gross dollar amount of sales falling....but prices of individual condos increasing. I'm not in Florida, but around me (SoCal) total sales are fewer now, but sales prices have increased. It's lack of inventory. I wouldn't extrapolate from that and say "The housing market is in real trouble." Around me, houses sell quickly these days, but I believe there are zero homes for sale in my 250 home neighborhood this month. Unusual, yes, but doesn't mean the housing market is in real trouble.

Declining inventory could very well be that sellers don't want buyers traipsing through their homes. (Confirmed, by a friend who is an agent).

To be honest, I feel sorry for your seller to have their buyer walk out a week before closing, after tying up their home through the spring market.

https://www.car.org/aboutus/mediacenter/newsreleases/2020releases/may2020sales

You can see how people try to justify that their own house will never fall in value. To the OP walk away.

I'm still really confused what the problem is, but I'm going to chalk that up to me being an idiot.

I just don't understand how someone can decide they want to pay X for a house, then find out it appraised for more than X...and then - and only then, mind you - complain they're overpaying.

If you can't afford the house, that's one thing.

But if you can afford it, and you like it, and you thought it was worth X when you made the offer - talk to me like the idiot I am, using very simple words, and explain to me why since you learned the house is worth even more than you offered to buy if for, now you have a problem.

The OP can legally walk away. Selling/ buying a home is nerve racking. The last home I sold was in Southern California, just before the last crash back in 2005. He was the last possible buyer. He way overpaid and lost Money on the house even holding for 13 years. We would have been crushed if the sale fell through, it didn’t. One of the reason I waste my time here, to much money to worry...

I don't consider myself an idiot and I still don't get it. It's probably a case of buyer's remorse and OP is trying to justify to herself walking away or she just really doesn't understand the basic principles in play, or both.

I didn't see this before you decided to walk away, but here is my 2 cents...

If you have questions about the appraisal, hire another appraisal. It is not that hard to find a second opinion.

If you are going to cancel a real estate contract without having a valid contingency to cancel then you should talk to an attorney, not a realtor. People often believe that all you risk is earnest money, in most states that is not true. You risk all damages but those are rarely pursued because most people don't want to deal with it. However, in every state I have ever looked there are many suits for breach of purchase agreement on real estate, so while atypical it is not rare. We should also note that most purchase contracts for real estate award all attorney damages to the prevailing party, which is unlikely to be the OP in this case.

Most sales contracts have a pretty generic cancellation for earnest money blurb, that is usually not effective. In fact, many/most have contradictory language under the Deposit section and the Default section (ours certainly does). A layman reading the contract in our state would probably assume you could cancel by forfeit of earnest money but it also has an entire section on defaults that largely contradicts that.

@User You aren’t an idiot! This situation is something related to real estate that people don’t talk about enough, IMO.

Appraisers determine the value of a property based on comparable properties that have sold recently...”comps”. This is way more important to the appraised value than the functionality or basic condition of the house, which is why you also want an inspection when you buy a house. (When I did mortgages a LOT of people thought the appraisal was an inspection...this was before we had places like Houzz.)

The lender who makes the loan, and the other lenders who will buy the mortgage on the secondary market (this doesn’t apply to all homes, but many), want to be able to turn around and sell the house and get their money out of it if a customer defaults on the loan. That’s why they care about the appraisal. This is more likely to happen if the house is similar in price to the ones around it.

Because this is the way appraisals are supposed to be done, the next time this house is appraised it will probably be compared to houses in the neighborhood. That means if the OP pays $450K now and sells it 2 years from now the new appraisal may be DONE RIGHT and be more like $350K. So she’d be losing money.

From what I can tell the OP can afford the house and likes it enough to pay that much. But she‘s not prepared to put herself in the position of being underwater on her mortgage if she wants to sell it.

In retrospect she realizes now she should have checked the neighborhood prices herself rather than trusting the Realtor. I don’t know if the Realtor had any legal responsibility to educate the buyer, the Realtor works for the seller. But, IMO, Realtors give themselves a bad name when they do stuff like this. I don’t have a good feeling about the appraiser in this case, either. But that’s why I suggested she talk to the bank. If an appraisal like that crossed my desk the first thing I’d be doing is calling the appraiser to find out why she’d gone far afield for comps. Because I sure wouldn‘t want the bank’s underwriting department on my butt when that appraisal kept that mortgage out of the secondary market portfolio.

Anyway. That’s a long diatribe. I just feel like the OP got piled on a little bit about this and wanted to clarify why she’s right to be concerned.

"That means if the OP pays $450K now and sells it 2 years from now the new appraisal may be DONE RIGHT and be more like $350K. So she’d be losing money."

She'd be losing money because she paid too much - not due to any fault of the appraiser. The only reason that there is a suggestion that the appraiser got it wrong is because the OP says so - and she's the one that failed to do her due diligence before making an offer!

I'd be very surprised if the appraisal was off by the amount the OP is claiming.

Thank you SapphireStitch. That was really helpful! :)

I think I figured out why I am/was so confused by this.

If I understand it now, the problem really has nothing to do with the appraisal being too high.

The post really should have been Help me, I have an accepted offer on a house and now I think I'm overpaying. (Or something less wordy. Ha!)

The appraisal being high has nothing to do with this buyer's perceived problem - except I think if it came back lower than her purchase offer she would have then used that to walk away.

Anyway - appreciate the reply. :)

@User Yes, I think that’s basically it. I think she’s saying that the appraisal comps being so far away were her first clue the house was overpriced. If she’d done a little looking on places like Zillow she might have spotted that earlier, but she believed the Realtor who told her the price was normal for that area.

Buying a house is a fraught process in a lot of ways. It’s almost impossible to be too informed about it.

I don’t know if the Realtor had any legal responsibility to educate the buyer, the Realtor works for the seller.

The OPer wrote "Our realtor...", so I assumed it referred to a buyer's agent, and don't know why you think the realtor would work for the seller. I didn't catch in a post that the same realtor also represented the seller. Did I miss that?

I believe the poster was in the financing business a long, long time ago... before there were buyer agents and all agents represented the seller, no matter if they were "working" with the buyer or not. She probably does not realize that there is buyer representation now.

@ncrealestateguy Now I feel ancient. Thanks! :) I do know about buyer‘s agents. I even know that some people think they have a buyer’s agent and don’t...if you aren’t paying them, they aren’t working for you.

I didn’t see anything the OP posted to indicate she was paying her own agent, but I should have been clearer about that.

Now excuse me while I drag my ancient carcass to the early bird special at the buffet. Oh, wait, dang coronavirus...no buffets. :)

A buyer does not need to pay the agent in order for the agent to be representing the buyer. And rarely do they. The seller still pays the entire commission in most cases. What one does need, though, is a signed Buyers Agency Agreement.

“If she’d done a little looking on places like Zillow she might have spotted that earlier”

This is what I am having trouble with, and where I see gaps in the story. How could anyone shopping for a home not look online for 15 minutes just to see what else there is? Clearly the OP goes online - she found this forum and wrote her post and responded to it.

I looked at her Houzz page, and she has a couple comments over the past 2 years about purchasing homes, so she is not new to this.

Also, is this home the only home she saw? She doesn’t mention seeing other homes, but if she had, she would have known what another home in the area at that price was like, and what another home in the area under that price was like. Could it really be that she saw just one home, did not look at any homes online, or any other homes in the area, and went ahead to put an offer on it at full price? I cannot imagine that to be possible. This story doesn’t hang together. There are logic gaps to this story, which I assume we will never see filled.

LOL at Sapphire and the early bird buffet! If you find one open, hold me a spot in line . . .

As a retired appraiser, she has cause to worry. Paying too much is a fatal financial mistake that can take a lifetime to correct. Does she go ahead and close or cut her losses and consider herself lucky and educated.

Forget the appraisal for a moment. Did she agree to pay too much? If yes, she can try to get out of the contract through one of the usual ways, inspection failures, undisclosed conditions, failure to appraise or failure to obtain adequate financing. There is usually a good way to get out of a contract and get your deposit money back. This is why you put down as little as possible for a deposit.

Was her agent competent? Maybe. If in doubt, place a call to the agent's broker. This will be the agent's boss. Discuss the issue. Not blaming anyone, but some agents are better than others. This one may be inexperienced and need more supervision. The agent advised the client to pay full price. The agent must have a rational basis for this advice. Find out.

I would advise her to review the appraisal and find the explanation as to why there are no comparable properties used that a located in the neighborhood, development or immediate area. If the comps were passed over, there must be language explaining this issue. As an appraiser, you are required to provide these explanations. If that language isn't in the appraisal, bring it to the loan officer's attention. Ask the underwriter to review the appraisal, again. It's a big red flag for fraud or incompetence.

The last option would be to consult a real estate attorney asap and before closing. That would be a cheap hours time with a professional that can go through the entire situation and provide actionable advice. Don't be cheap. Hire the lawyer for an hour.

Sometimes you do things that you live to regret. The education can be costly. Do you really want to tie yourself to something that you can't get out of easily? Only gardengriz really knows.

"...she has cause to worry. Paying too much is a fatal financial mistake that can take a lifetime to correct...

Yes she has reason to worry if they offered too much. But blaming a high appraisal is off the mark.

It isn't an agent's job to determine what a house is worth to the buyer. One house we viewed had bare dirt for a back yard. Most buyers would have marked their offer down for a lack of landscape and an irrigation system. We would have increased ours, because it meant we would not have to remove everything and have it hauled away. Our agent laughed and claimed "That was a first." when I walked into the back yard and proclaimed "Wonderful! It's a blank slate." lol

Yes she has reason to worry if they offered too much. But blaming a high appraisal is off the mark.

Why?

If an appraisal contingency existed in the contract then it is reasonable to expect that appraisal to be done correctly without fraud or negligence. There is nothing wrong with making an offer contingent on certain conditions in the contract, such as inspection, termite, financing, appraisal, etc.

If the buyer made the offer contingent on a condition and the seller accepted that contingency, then the buyer had a reasonable expectation that condition be satisfied. It doesn't matter if there is also buyer's remorse, it doesn't matter if the buyer should not have made the offer in the first place, the buyer insisted on a protection that they now question the veracity of. Which they have every right to do.

I am not sure the best course of action was to terminate the contract rather than take further steps to satisfy the appraisal contingency, but I see nothing wrong with expecting to be reasonably assured by the assurances you had in the contract.

The buyer did not make an appraisal coming in over the offered price a contingency.

Isn't an appraisal contingency to protect the buyer against an appraisal that is too low?

"Isn't an appraisal contingency to protect the buyer against an appraisal that is too low?"

No, it is to protect the buyer from paying more than fair market value. Which is exactly what the OP is worried about.

You are essentially saying the value of a knowledge based service is approval, but that really is not true. The value of a knowledge based service is accuracy. The advantage of an annual physical isn't the doctor saying you are healthy, it is being healthy. If you die of a heart attack before leaving the doctor's office, then the physical was of no value to you. The same thing goes for dentists, architects, engineers, lawyers, accountants, and even appraisers. In every single one of them, if you have a reasonable question on the veracity then you should get a second opinion.

Appraisals are not an exception to that rule. I absolutely agree that the OP shouldn't cancel the contract without a second appraisal, but this sentiment that she isn't entitled to question a higher than expected appraisal is unfounded.

Huh?

There are countless instances where buyers have paid well more than fair market value. The house is worth to the buyer what the buyer is willing to pay for it (what it's worth to the lender is a different issue). Sure she's entitled to question the appraisal -- most of us just don't see why a high appraisal is an issue. I still maintain it's probably a case of buyer's remorse and OP is trying to justify to herself walking away -- which really has nothing to do with the appraisal. Seems like she didn't do her homework and really had no clue what the house is worth ballpark. And for all we know, the house really should have appraised as high as it did for whatever reason -- we don't have that information and are assuming it shouldn't have, just because she thinks so.

So let me answer both the question that she asked and the one that many thought to answer

1. If you have reason to believe that an appraisal is incorrectly high then you should not move forward until you are reasonably satisfied of the veracity of the appraisal.
2. If you have reason to believe you are overpaying for a house, you should take every available action to correct that. House sales are an arm's length transaction and so you should act to protect your own interests and not the seller's. If you can negotiate out of the deal by sacrificing earnest money and it is beneficial to do so, then you should absolutely do so. There is no principal-agent relationship between buyer and seller so don't act as if there is.

Whatever. It's too hot outside for all this arguing and the back and forth is pointless -- you are a person who would argue with a millpost.

The OP did not want to be the most expensive home in the neighborhood, as she herself, stated. She failed to do her due diligence before signing the contract, and was hoping the appraisal was going to give her an easy "out"

Plain and simple.

OP here and a little update:

First off, we did go thru with the sale, at the asking price of $489K, and I’ll explain why.

A little reference though: We are outside of D.C. where the housing market – like San Fran, Seattle, L.A. etc. – is ALWAYS lucrative and significantly higher than the rest of the country. Houses list and sell within the same day during prime “market season” (spring) all the time. The average cost for a home here is anywhere from $575K - $614K and up, depending on how close you want to live to D.C. and what you want for a commute. So, a house for $489K in this area is a great price! It’s in a very nice neighborhood that is minutes from the commuter railway into the city (and soon-to-be Amazon headquarters).

This isn’t my first home purchase, in fact, I consider myself pretty savvy in the home buying department. My husband and I could have comfortably afforded a much higher mortgage, but we’ve always bought homes that were well below our budget.

Yes, the house appraised at more than what the recent comps in the neighborhood valued; however,…

• The house had everything we wanted in what we were looking for in the area we wanted to be
• It’s a gorgeous house that was worth what the seller was asking – that’s why we didn’t budge at the asking price and were shocked to later find out that the comps in the neighborhood were much lower
• Even if the house was over appraised, a price of $489K in this area is a great buy and we know that we wouldn’t be able to find a house that had all this one had at that price again.
• We plan to be there 10-15 years till we retire
• We are taking a risk that our home purchase will now bring the comps up in the neighborhood
• We are taking a risk that IF we had to sell before our expected time here that our home would appraise appropriately AT LEAST for what we paid – trends for the housing market in this area typically go up.
• We are taking a risk that average home prices for this untapped pocket of homes in this area will increase when Amazon opens its new headquarters in Arlington/Crystal City in 2-3 years. ALL the home values within commuting distance to this new location are expecting to explode. This is known as the “Amazon Effect”. See this article that explains: https://www.builderonline.com/money/economics/the-amazon-effect_o

What we learned:

• Yes, we should have checked comps ourselves before making an offer. We trusted our buying agent to advise us, but she did not and we made an offer on the spot. So, that’s a valuable lesson on our behalf. We would never use her again or refer her to someone else simply because she should have known better as an experienced agent. Was it intentional or unintentional? Who knows. We hope that we don’t regret it later on.
• I am a veteran and our bank, Navy Federal, backed-up the appraisal, but also did not give us many options other than getting another appraisal, which would have taken another month and risk us losing the sale.
• Did we overpay? Who knows.

Thanks for the update.

Did you ever ask your agent why the other homes in the neighborhood are comped so much lower?

Did you see in the appraisal the remarks as to why the appraiser had to go outside of the neighborhood?

Glad to hear it worked out -- you now sound quite comfortable and happy with the purchase :0)

It’s possible your agent advised you to go in at full price because homes are selling so quickly. In my area (Mass.) homes are going in a matter of a few days, sometimes for over asking price due to low inventory and low interest rates. Was there a lot of activity on this house? If there was, I don’t think you should be blaming her. She was trying to get the house for you and she did.

I also live in the DC metro area, and I'm about four miles from the new Amazon HQ. Real estate values are extremely hard to understand and predict here, and in an established neighborhood its often difficult to find truly comparable sales data because there are very few cookie-cutter developments.

In the "old days" of 1985 when I first bought a house here the realtors understood that the neighborhood and other factors (access to Metrorail, schools, etc.) were very significant for determining the value of a house. However, when we bought a house in 2012 we found they seemed to have gone to the nationwide practice of focusing on dollar per square foot. Dollar per square foot is not a useful metric for most established neighborhoods in the DC metro area. There are too many other factors that affect the house value.

I think the key point for the OP is that the house had everything they wanted. Live in it and enjoy it.

Bruce