Is This Common when Bidding on a House?

blueheronAugust 25, 2010

We are selling a cottage on the river for $250,000. Couple made a bid of $220,000 and had a list of terms. One was that they would have the house appraised and if it didn't appraise at the selling price, they wouldn't have to buy it.

Just wondered if that was standard procedure. I had never heard of it before. They also wanted us to pay for a home warranty. What is usually done in that case? Does the seller pay for it or does the seller or do they split it?

We made a counter-offer which they declined, so it's a moot point, I was just curious.

Thank you for reporting this comment. Undo
cordovamom

We've purchased 7 homes over the years and each and every one of them was contingent upon the home appraising at or above purchase price. It's pretty common, especially in a declining market. The home warranty is usually paid for by the seller, it's just one of those incentives that makes your house more attractive. It's not set in stone though and you could negotiate to pay half.

    Bookmark   August 25, 2010 at 9:03PM
Thank you for reporting this comment. Undo
krycek1984

I've only purchased one home (last year), but it was contingent upon the house appraising at or above the purchase price (among other contingencies). I believe most real estate contracts have that clause. Nowadays that clause comes back to haunt sellers, but helps buyers. The house we were purchasing appraised below the purchase price...uh-oh! It led to contentious negotiations with the seller...things almost fell through.

Yes, seller, especially in this market, pays for a home warranty.

And I wouldn't be surprised if they asked for closing costs, too. We sure did. Not a good time to be selling, that's for sure.

    Bookmark   August 25, 2010 at 9:17PM
Thank you for reporting this comment. Undo
blueheron

I will keep you posted as things progress. We've had a lot of showings and a potential buyer who will pay full price, so we will keep our fingers crossed.

    Bookmark   August 25, 2010 at 9:53PM
Thank you for reporting this comment. Undo
artemis78

This all varies regional, but where we are:

- 100% normal to have an appraisal contingency (in fact, I don't think that's regional anymore, because most banks will not issue loans anymore if appraisals are too low, so buyers could be stuck without that contingency).

- Home warranties are not generally included at all, and if they are, it's completely negotiated who pays for it. Buyer can certainly ask for one, but I wouldn't expect many sellers to say yes. Our realtor bought us one as a gift, which the firm does for all their clients (so I assume that means most of the deals they brokered at the time did not include any warranty in the contract itself).

    Bookmark   August 25, 2010 at 9:59PM
Thank you for reporting this comment. Undo
krycek1984

Congrats, blueheron! That's great news! Even if it doesn't come to fruition, it's great to know there is so much interest!!!!! Good luck!

    Bookmark   August 26, 2010 at 12:25AM
Thank you for reporting this comment. Undo
worthy

An offer conditional on financing, which implicitly or explicitly includes the lender's appraisal, is common. The other items are negotiable. When I was anxious for a sale, I clinched an offer by agreeing to reno the only bathroom in a five bedroom three-storey house. (I finished it the day before the closing. Phew!)

    Bookmark   August 26, 2010 at 9:18AM
Thank you for reporting this comment. Undo
Gina_W

Around here, many sales are falling out of escrow because the appraisal is coming in lower than the sales price, and the banks are not lending in those circumstances. So the buyer may not have a choice but to have an appraisal contingency.

    Bookmark   August 26, 2010 at 12:18PM
Thank you for reporting this comment. Undo
blueheron

The house is really more of a year-round getaway, rather than a family house. It only has 2 small bedrooms and no closets except a utility closet in the kitchen.
The view is gorgeous, though, and the rest of the house is quite roomy. I hosted 18 for Thanksgiving one year.

Here is a link that might be useful: Waterfront Cottage

    Bookmark   August 26, 2010 at 3:41PM
Thank you for reporting this comment. Undo
linda117117

The appraisal clause is pretty standard, especially with financing. If it doesnt appraise, it would mean they would have to come up with more money. The clause just guarantees they dont have to do that. My guess is this house hasnt been on the market very long. Its waterfront property! Stick to your guns, they dont make anymore of this stuff. If you've had two offers in a few days and one is full price, you are in the drivers seat with this property. The east coast hasnt been hit as hard as the rest of the country. The market is bad, but not that bad! This is a vacation type property, the people bidding on this arent affected by the economy like most 250k buyers! Hold out for your best buyer!

    Bookmark   August 26, 2010 at 7:50PM
Thank you for reporting this comment. Undo
blueheron

Yes, Linda, you are right, the house has only been on the market for over 2 months. We don't have to sell it, so we can wait for the right buyer.

It's true that this part of the country has not been hit as hard as other parts of the country. The full price buyers haven't actually made an offer yet. They are dealing with the loan officer at their bank and it seems to be taking a long time. So we aren't holding our breath for that one. There is another interested couple who are looking at it a second time tomorrow evening.

    Bookmark   August 26, 2010 at 9:17PM
Thank you for reporting this comment. Undo
blueheron

We received an offer for $240,000 and we agreed. Now we will have to see what the appraiser comes up with. If it is less than the offer and the buyers stipulated in the contract that the house had to appraise for less or the same as the sale price, is the offer invalid? What is their option? Do they make another offer equal to the appraisal value? Just curious.

The REA told me that when a house is under contract, they don't usually show the house, but take the name of the client and get back to them if the contract falls through. We received a call today from the REA's office that the house is being showed this Friday. And it's under contract.
I wonder what's that about.

    Bookmark   September 1, 2010 at 4:58PM
Thank you for reporting this comment. Undo
terriks

What is their option? Do they make another offer equal to the appraisal value? Just curious.

They could offer you the appraisal price, or they could walk away.
I think it's in your best interest that the house continue to be shown. Perhaps another buyer will make a back-up offer. If buyer #1 knows that there is a back-up offer and the appraisal comes in low and they really want the house, they may come up with enough cash to buy it at the agreed upon price.

    Bookmark   September 1, 2010 at 8:30PM
Thank you for reporting this comment. Undo
blueheron

Those were my thoughts, also. Do buyers make back-up offers when a house is under agreement?

I have a feeling these buyers do really want the house. We are waiting for the appraisal now and then we'll take it from there.

    Bookmark   September 1, 2010 at 9:18PM
Thank you for reporting this comment. Undo
krycek1984

I certainly didn't make a back-up offer when I was purchasing a home! And my realtor certainly wouldn't have let me. That opens up a gigantic can of worms for the buyer.

Of course, we did have other homes on our list in case this one fell through, but definitely no other formal offers of any sort.

    Bookmark   September 1, 2010 at 11:00PM
Thank you for reporting this comment. Undo
terriks

Those were my thoughts, also. Do buyers make back-up offers when a house is under agreement?

That's the only time they would make a back up offer.

    Bookmark   September 1, 2010 at 11:00PM
Thank you for reporting this comment. Undo
ncrealestateguy

Please explain yoursel, Krycek1984.

    Bookmark   September 2, 2010 at 7:19AM
Thank you for reporting this comment. Undo
krycek1984

Maybe I didn't understand what the OP meant by "back-up offer" but I interpreted it like this:

Making an offer on one house, but also making an offer on another house in case the first house doesn't work out.

It's not a good idea to have two contracts floating around out there and could land the buyer in significant trouble.

    Bookmark   September 2, 2010 at 2:57PM
Thank you for reporting this comment. Undo
cordovamom

krycek I don't believe that's what the OP was saying. The scenario the OP is referencing is - accepting a primary offer from a buyer and sometimes (especially if the property is unique or very desirable) a second buyer will come along and make a back up offer on the house in case the original buyer deal falls through.

    Bookmark   September 2, 2010 at 3:49PM
Thank you for reporting this comment. Undo
sylviatexas1

what cordovamom said.

Those "warranties", which are actually service agreements, are very attractive to buyers-
we encourage sellers to sign up for them when we list the house, so the sellers get at least a little bit of service for their money.

    Bookmark   September 2, 2010 at 3:59PM
Thank you for reporting this comment. Undo
blueheron

I was under the impression that the house wouldn't be shown if it was under agreement? Why waste the buyer's and REA's time?

    Bookmark   September 2, 2010 at 4:43PM
Thank you for reporting this comment. Undo
worthy

A purchaser can make an offer conditional on a prior offer not being completed. Here, typically, a home with a conditional offer is still on the market. As a Vendor, I would certainly keep my property on the market when there's a conditional offer on it.

    Bookmark   September 2, 2010 at 6:00PM
Thank you for reporting this comment. Undo
brickeyee

"Those "warranties", which are actually service agreements, are very attractive to buyers-
we encourage sellers to sign up for them when we list the house, so the sellers get at least a little bit of service for their money. "

Moat of them simply move money into the service companies pocket, who then works as hard as they can to keep it.

The quality of work is often poor, and 'repair' is the word of the day.

They will repair over and over to avoid paying to replace equipment, and then the warranty expires leaving the owner with a failure prone (and often old) piece of equipment.

If you try and extend the 'warranty' they will take into account what they know about eh repair costs to set the rate (they are in it to make money).

Few are actual insurance companies, so if they fold up you get nothing.

It is more of a gimmick than anything else.

    Bookmark   September 4, 2010 at 11:45AM
Sign Up to comment
More Discussions
something to check when buying a home (pets/carpet)
something i wish i'd checked out before purchasing...
kiki_redo
Why would nosey realtor say these things?
It is clear my house lacks a wow factor. I over de-cluttered...
belfastbound
Retiree - rent or buy home
We are newly retired and have a plan to sell our current...
waterlily_girl
How soon is "too soon" to select a realtor?
Not planning to sell until about this time next year....
lori_inthenw_gw
Should we buy a home that was unoccupied for 6 years?
There is a cup-de-sac where a builder built 5 homes,...
coffeemama1
People viewed this after searching for:
© 2015 Houzz Inc. Houzz® The new way to design your home™