Calmly tell them that the comps and the appraisal don't support their asking price, or their counteroffer. Ask them to support the rationale for the higher asking price.

Then walk away and keep looking.

Also, if the bank won't lend it, the bank won't lend it. If you aren't able to pay cash, then you have no other choice but to walk away from it, right? They will have to see that too.

And, this is common with FSBO. Often, the reason they didn't go with a RE agent in the first place was because they either need more out of it than it is worth and/or would get after brokers fees, etc, or they think it is worth more than what an agent came in and said it'd sell for, so they decided to do it themselves...

Lazygardens is absolutely right, of course.

"we offered 375,000 which is the amount a bank would lend us"

Has the bank approved a loan for $375,000? Then what is the bank's appraisal amount? It can't be the same.

"Ask them to support the rationale for the higher asking price."

Who cares what excuse they have?
The lender has appraised the place.

End of conversation.
'Fantasy' prices seem to be a real problem with FSBO sellers.

I have given up even bothering with them for the3 most part since I do not enjoy wasting time.

It is like the heirs selling 'mom's house' who look at the prices of well maintained and renovated houses a few doors away and cannot comprehend why they cannot get that price.

A 1950 kitchen is NOT a selling point.

375.000 is what the appraiser said the house was worth.

I suggest you have a sit down meeting with the owner and show them the bank's appraisal and any other comps data you may have. Explain to them there asking price is not supported by the current market. You can say you would like to buy there house, but are limited by the amount of financing the bank will provide.

In your conversation you may be able to find out how they set their asking price, and how long they are willing to wait to get it. The owner could be misformed about the market, or thinks his house is special. The owner my be willing to wait a long time for the market to catch up to his price.

I would simply tell them "this is what the bank appraisal is" and show them any documentation.

You have zero control over the seller's mental valuation of their house. All you can do is show them your info and be prepared to walk away. And then maybe a year or two later, when they get tired of being on the market and come down to a realistic price, if you're still interested, you can make an offer to them again. But, I wouldn't waste my time. FSBO's as a whole are difficult to deal with, largely for this very reason.

brickeyee: Fantasy prices aren't exclusive to FSBOs. I've seen plenty of realtor listings with fantasy prices too.

hankster: I'd just respond by showing them the appraisal and politely (since you're friends) saying "we really love your home, but can't justify paying more than market value." You can continue with "we understand if you're not willing to take our offer, and we won't be mad at you. But that's all we can justify at this point."

I did that, showed them the comps, an email from insurance agent and the bank appraisal and that's when they came back with 425,00. We are not selling our house so the build was not contingent on anything and I told them they could even rent from us till their house was move in ready. They seem to be emotionally involved with all the things they did to the house and all the upgrades and landscaping they did. So what now?

They have to come to realization at their own pace.

If I were you, I would keep looking. Don't waste any more time and energy on this deal.

Seems there's nothing more you can do but walk.
Like weedyacres, I have found the fantasy pricing also occurs with agents involved.
Sellers seem to set their price based on recovering what they paid for it plus their upgrades. The reality is, if you bought in the last ten years you are not likely to sell for more than you paid for it.

"Fantasy prices aren't exclusive to FSBOs. I've seen plenty of realtor listings with fantasy prices too. "

There may be a few, but it has always been far better when agents are involved.

They tend to try and keep prices more in line since they know they will not be able to close a sale.

The FSBO folks are usually trying to capture every dollar they think they can get, and often cannot understand their costs have little to do with the market value.

Considering the fact that you know those guys personally, why don't you want to talk things out? Tell them that you are running low on the finance or perhaps try convincing them to take the amount in installments. It could work to both your benefit. Best of luck.

"try convincing them to take the amount in installments. "

The mortgage lender is not going to be very happy.

You might look at other houses.

Tell them that you are running low on the finance or perhaps try convincing them to take the amount in installments.

If they did that they would still be overpaying for the house.

I don't understand what the insurance agent adds to this???? Maybe that's a regional thing? I wish I didn't have to cover my house with replacement cost insurance. If my house were to burn to the ground, I'd be happy to run with the money...would NEVER re-build the same house/same location, yet my insurance guy says I have to insure at replacement cost for the bank. It is significantly MORE than I'd get if I sold.

"insurance guy says I have to insure at replacement cost for the bank"

It is likely a condition of the loan you have.

Not holders want to make sure they are not stuck with a burned out shell on a lot.

Well we bit the bullet Friday and bought the house. We spent 415,000 and I am rationalizing as we paid 100,000 for the most beautiful piece of property on a golf course and it's 2 acres and only 315,000 for a top notch house.

It's going to be a cash deal so, my wife wanted it and she got it, only time will tell if it be a bad investment.