FSBO House buying woes

[YaelAldrich]

We're looking at a FSBO but are out of the country so we had a friend look at it. She liked it and so we asked if we could send an appraiser to look it over as well to give us an idea of the fair market value. He gave the appraisal as $176,000 vs. their asking price of $245,000. We sent them the appraisal and got back that the appraiser was all wrong, the appraisal from two years ago when they bought it was 10K more, they've painted inside/put flowers outside, etc., but also lowered their price to $215,000.

 

After doing some reading, I asked them to hire their own appraiser to come give another price point to begin real negotiations. They are questioning the logic of it.

 

Was this a good move and if the negotiations continue what would you suggest I do next? They refuse to use any brokers at all for this deal, but are threatening to take the home to a broker in a week or so, They are relocating in late July and we would move in August. We have other houses we are interested in but this house has some features we would like to have (pool, BB court, big yard, unfinished basement), so I am not stuck on this house.

[wapiti]

If I were selling FSBO, I would not hire an appraiser just to please a potential buyer who is trying to convince me that the house isn't worth my asking price. The house isn't worth what an appraiser estimates; the house is worth what a buyer is willing to pay. You need to decide what you're willing to pay based on the house itself and the other options in the market. Make an offer if you like, even if it's a low one. If you can't come to an agreement, move on.

 

As an aside, having bought and sold FSBO ourselves, do use a real estate lawyer.

[elegantlion]

We sold FSBO many years ago. The appraisal was very close to our asking price. IIRC, the buyer couldn't get a loan for more than the appraisal amount anyway. We went through a real estate attorney, recommended by a local FSBO group (which was very helpful).

 

I guess my first question would be if the appraiser did a full inside appraisal or simply did a drive by and used county information on sf etc.

 

When we sold the appraisal was our negotiating point, that was the one document to prove how much the house is worth. That's a pretty big discrepancy on yours. Either they're doing some wishful thinking, didn't do their homework well, or overestimating how much paint and flowers will add to value.

 

I'm not sure what a second appraisal would do. It might be worth it for you do pay for another, but if it's still low and they won't negotiate, I'd walk away.

 

ETA: read the above post. I don't know enough about current markets, but if you need a loan would they cover the difference? What about insurance? Will they only insure to appraised value? Those would be my questions even if you're willing to pay more than appraisal price.

[wapiti]

I'm not sure what a second appraisal would do. It might be worth it for you do pay for another, but if it's still low and they won't negotiate, I'd walk away.

 

ETA: read the above post. I don't know enough about current markets, but if you need a loan would they cover the difference? What about insurance? Will they only insure to appraised value? Those would be my questions even if you're willing to pay more than appraisal price.

 

 

The mortgage and insurance issues are good points that I wasn't thinking of. AFAIK, the mortgage company typically uses its own appraiser and will use that number in calculating the percentage it's willing to loan (loan to value ratio). A buyer who wanted to pay more could do so, though the extra would need to be part of the down payment.

 

As far as negotiation, I really don't think another appraisal would make a difference to the seller and if I were the seller I sure wouldn't pay for another one or care much what it said, even if I had overpriced my house. If you can't negotiate a price, I agree that it's time to walk away.

[YaelAldrich]

So you think we should put together our offer (with our lawyer, of course!) and let things fall as they may?

 

We paid the appraisal agent and he did a thorough job -- lots of pictures, 5 comps (two of them within one block of the property). We can cover the difference, but I'm not telling them that. Just as they want to get every dime from the property they can, we don't want to give away our money just because the family thinks their home is better than sliced bread. They said they put ~$20K into the property over the last two years and they want to recoup their entire investment.

[elegantlion]

So you think we should put together our offer (with our lawyer, of course!) and let things fall as they may?

 

We paid the appraisal agent and he did a thorough job -- lots of pictures, 5 comps (two of them within one block of the property). We can cover the difference, but I'm not telling them that. Just as they want to get every dime from the property they can, we don't want to give away our money just because the family thinks their home is better than sliced bread. They said they put ~$20K into the property over the last two years and they want to recoup their entire investment.

 

I would probably do quick call to your insurance agent and see what they would do in case of a total loss. Can they insure to full replacement cost in case of total loss or do they use appraisal?

 

 

I'd be tempted to put in an offer, recognizing they may not budge. Also, if they're being fussy about price, what else will they be fussy about before closing?

[YaelAldrich]

I would probably do quick call to your insurance agent and see what they would do in case of a total loss. Can they insure to full replacement cost in case of total loss or do they use appraisal?

 

 

I'd be tempted to put in an offer, recognizing they may not budge. Also, if they're being fussy about price, what else will they be fussy about before closing?

 

My husband asked about replacement value and I think he said we could always buy a rider for full replacement plus 20% if we needed to.

 

I hate that we may need to spend more money (after the appraisal) to have the lawyer check out the purchase agreement to find they want more than we are willing to pay for this house, when I have my eye on some other places already (but not as big as this place is and no pool, BB court in the backyard) that wouldn't be that much less (than the appraised price we have, even to the appraised price they are holding up from two years ago).

[vonfirmath]

So you think we should put together our offer (with our lawyer, of course!) and let things fall as they may?

 

We paid the appraisal agent and he did a thorough job -- lots of pictures, 5 comps (two of them within one block of the property). We can cover the difference, but I'm not telling them that. Just as they want to get every dime from the property they can, we don't want to give away our money just because the family thinks their home is better than sliced bread. They said they put ~$20K into the property over the last two years and they want to recoup their entire investment.

 

This is one classic problem with FSBOs -- unrealistic price expectations on the part of the seller. You rarely "recoup your entire investment" on money put into property.

 

We just bought a house with a loan. When getting a loan, the mortgage folk only consider the house worth what it appraises for. Then they expect you to put 20% of THAT value down and will only loan the appraisal -- 20% down at the best interest rates. If someone can afford to put money down above that, then of course you can pay whatever you like for the house. (and after it all closes, the new $$ paid does become the value of the house, at least for the first year) And sellers can request whatever they like, hoping a buyer will show up with $$ in hand to pay the extra past appraised value.

[alef]

We're looking at a FSBO but are out of the country so we had a friend look at it. She liked it and so we asked if we could send an appraiser to look it over as well to give us an idea of the fair market value. He gave the appraisal as $176,000 vs. their asking price of $245,000. We sent them the appraisal and got back that the appraiser was all wrong, the appraisal from two years ago when they bought it was 10K more, they've painted inside/put flowers outside, etc., but also lowered their price to $215,000.

 

After doing some reading, I asked them to hire their own appraiser to come give another price point to begin real negotiations. They are questioning the logic of it.

 

Was this a good move and if the negotiations continue what would you suggest I do next? They refuse to use any brokers at all for this deal, but are threatening to take the home to a broker in a week or so, They are relocating in late July and we would move in August. We have other houses we are interested in but this house has some features we would like to have (pool, BB court, big yard, unfinished basement), so I am not stuck on this house.

 

No advice, but wow--sounds like an amazing price for a house with all those amenities. You must be in an area with low housing costs. I do think another appraisal would be helpful, you won't be able to get a mortgage for more than the appraised value. Of course if you have cash to pay you can do what you like...

[Momof3littles]

We went through a bit of this when we bought our house FSBO. Seller was still looking at price peak, and then had a realtor in who told her she could list for X, even though the comps didn't seem to support that. Owner didn't sign with the realtor, but had that price stuck in her head. She would try to compare her house to a few others locally that had sold, but they were either all brick, all updated (redone kitchen, granite, etc. vs. 80s oak, albeit good quality cabinetry). She also would talk about a similarly sized house across the street that had sold at the peak for substantially more, but that *was* the peak. Irrelevant several years later, unfortunately. And that house had been redone top to bottom. Hers was well cared for, was built by a quality builder, etc. but unfortunately, that only influences price so much most of the time. She was also emotionally invested as her husband had recently passed away, and this was a house they had built together...very emotionally loaded.

 

I think the realtor inflated his suggested price as he wanted her listing. YOu know, I'm skeptical having bought and sold a few times now, but I think the realtor told her what she wanted to hear. And if she had listed, in a few weeks or months he'd be telling her to reduce the price. It was very much a buyer's market when we were looking, as people were having a really tough time qualifying for loans. We already were preapproved, etc.

 

We made her a fair offer and she balked completely. We generated a list of comps on a spread sheet, noted lot size, garage type, updates that had been done, etc. Our offer was very fair. We walked away, and then a week later I think we gave her a 2nd offer that was a bit higher. We also told her even at the price the realtor had told her, til she paid 6% in realtor fees, etc. it was going to basically be a the same price. And she wouldn't have to show the house and so forth. At the same time, I can see how as a seller, she maybe wanted to test the market a bit.

 

It was a long and difficult negotiation process and she eventually came around. The FSBO situation is definitely difficult because I think the emotions that come with it are more intense.

 

I would not ask her to have it reappraised. I think you should put together a fair offer and toss it out there, and see where the chips fall. Be prepared to be rejected. But if they test the market a bit, they may come back to you in a few weeks or months. It will only appraise for what it appraises for, and if they are significantly out of line, it is unlikely they'll get another buyer at their desired price point.

 

edited to add: I think things like landscaping, etc. can help a house sell faster, but they don't necessarily change the actual appraised value all that much. A better lot, a better built house, etc can help, but I think more from the standpoint of having it sell quickly than inflating the value a whole lot. With appraisals, a lot comes down to just square footage and lot size, neighborhood, and then overall condition. A lot of the the other factors only influence price so much, IME.

[Momof3littles]

I'd also urge you to not overpay if they are being unrealistic. You can't pay because someone else has an overinflated sense of their home's worth, assuming the appraisal you got is fairly accurate. Have you looked at some comps on your own just to get *some* idea? Are they well over the price per square foot (that's not a be all, end all # by any means, but as a ballpark) for a lot of similar size on comped properties?

 

No harm in putting up a fair offer, but then I'd let it go and see where the chips fall. Once they test the market they may come back to you. Or you may find something else that is a better deal or that you like better.

[Kathryn]

We walked away from a FSBO after a long negotiation process. The woman just had no grasp on reality. All she was thinking about was what she "needed" to pay off her mortgages, not what someone would realistically pay or put up with from her. She and her fiancé tried to threaten us a few days from closing when they were backing out of doing things they had agreed to by saying they had another couple right behind us "willing to pay full price, as is." We called the bluff and walked away. The house sat empty for six months and then was rented out for a year and finally sold by a realtor two years later, for less than we were going to pay and they had done the fixes that they had refused to do for us (fix rotten siding on front and cut down dead tree).

 

There's a couple that lives in the largest house on our neighborhood, by 50% (it was added onto), and they are trying to sell their house for more than they bought it for at the height of the housing bubble. Someone could get the same size house in a much nicer neighborhood very nearby for less than they're asking. It's ridiculous.

[Catwoman]

Based on everything you have said in this thread, I would walk away from the house.

[AngieW in Texas]

We had a problem like that. After the appraisal, our insurance company told us that they would not insure the property unless the deck was torn out (termites), the roof was replaced (30 years old with some shingles missing), and the owners explained the scorch marks on the water heater and the 5 insurance claims for water damage from the water heater. The sellers refused to do any of the work on the house. We said that we couldn't buy it without the repairs being done. We walked away. About one month after we had moved into the house that we ended up buying (a far better house in every way and at the same price), they called us to ask if we were still interested now that they had done all the repairs asked for.

[YaelAldrich]

I took their appraisal from two years ago to my appraiser (along with her comments, "as a CPA, I can tell you house values have gone up 3-5%:, "we put in 20K and want the money" "we bought the house at a highly discounted rate as a REO") and the kicker, "$189,900 - using the sales comparison approach. Using the Cost approach, the value was at $197,399..". He said if she would let him do her taxes he would believe her about the appraisal, he had 5 comps to her 3 and he did the addition for the bath in the basement (but not counted the rest of the space since it is literally sheets of paneling, nothing else, and that the Cost approach was the value to rebuild the house from scratch, not the market value of the house.

 

So I've contacted my lawyer to fill in the blanks on a PA and we'll see what happens. Would you put a letter describing our reasoning for our offer (at the price we are offering would be within 10K of the amount they would take home if we had 6% commission from a regular sale -- and we have to replace the pool liner, counters in kitchen, and refinish floors and clean siding and repaint trim at the least to make it decent.)?

 

My husband wants me happy but he also wants us with a contract in his hand soon -- he worries we'll be living out of suitcases in a hotel once we get back to the US in August with his school year (he is a professor) starting in two weeks after we arrive and he has to buy a car now that we are moving away from the college town. I've got my realtor looking at other nice places this week and and another FSBO to look at. The market turns over fast here; but nothing like bidding wars it seems...

[zoobie]

Our house was a FSBO but we had a buyer's agent. The owners were way overpriced at first, and our agent had to negotiate like crazy. Turns out the reason they listed FSBO was because none of the agents they interviewed would list the house at what they thought it was worth.

 

If you're getting a mortgage, your mortgage company will do its own appraisal and they will not give you a loan for more than they feel the house is worth. If the sellers won't come down at that point, you either have to pay the difference in cash or walk away.

 

Ask if they pulled permits on the basement renovations--that affects the value of the improvements.

[sbgrace]

We had a lower than it should have been offer on the home we sold. The real estate person giving us the offer told us they "had" to do x, y, and z, justifying the price drop. Nothing they listed really had to be done and I wouldn't have done any of it had we stayed. None of that list made me want to sell to them. In fact, it annoyed me. I knew they likely wouldn't actually do any of the list and they haven't.

 

Our real estate agent dropped money off her commission. She also talked them into paying upcoming property taxes, dropping the home warranty, and covering their closing costs. This meant their offer was very close to what we had hoped to walk away with, so we accepted it.

 

My point--I would not justify the price with the things you plan to do the house. Clearly they are living happily with the counters and floors. So I don't think that list will help your cause. I do think it's worth pointing out that they are saving the commission if they aren't thinking about that, though they likely listed FSBO for that reason. They already know you don't agree with the valuation. Have they been trying to sell long?

 

It will come down to whether they think they can do better than your offer, so I would just make it and be done. If you're not open to negotiation say firm.