If you are somebody trying to buy a Cambrian house to live in, you’ve probably found yourself in a frustrating competition with buyers that have “all cash”. Why do they always seem to get the deals, even though their offers are often not the highest one? The answer is maddeningly simple. In this upward trending market, the appraisal price required for the bank to fund your loan often does not match the price required to win the deal. And sellers understand this, therefore often accepting a lower all cash offer which has no appraisal and finance contingency.
There is a significant disconnect between appraisal values and today’s home prices, which is causing huge grief for buyers using conventional financing. The obvious question is this: why won’t appraisers recognize that prices are rising and appraise homes at a price required for your offer to get accepted? The reason is two-fold: 1. Appraisals are done using sold comps, which are backward looking and often don’t reflect current market realities. 2. The lack of inventory and sales in Cambrian makes it very hard to find recent comps reflecting the recovering market. These two factors force appraisers to often come in at very low values relative to the offers a seller has to consider.
Given the scenario above, sellers often have a choice. They can either accept the lower “all cash” offer OR take a chance with a higher “conventional loan” offer that may not appraise for the offer price. By accepting a conventional loan offer, the seller accepts a certain amount of risk. Taking this risk means the seller is betting that the appraisal will come thru at the offer price. Often times, a realtor looking at comps can provide reliable guidance.
There is one strategy that can possibly help the seller in the scenario above. Understand that the buyer has a few choices if the appraisal does not come in at the offer price. The first choice is to add the difference between the offer price and appraisal amount to the down payment. Second, the buyer can try to re-negotiate the offer price to match the appraised value. Of course option 2 is what the seller fears will happen. IF you are willing to make up the difference of appraised value and offer price, you should make this intention known to the seller (in writing). Additionally, make a strong offer that does not ask for significant concessions (remember we are in a seller’s market right now). Since the offer still has an appraisal and finance contingency it does not guarantee the seller will accept the risk, BUT it may give you a fighting chance.
I hope this helps explain why sellers often leave what appears to be “money on the table” for an all cash offer. Happy hunting!