12-21-2012 05:53 AM
I recently put a bid down on a bank-owned property (sold as-is). The house was listed at $225K and our bid of $250K was accepted (conventional, 5% down). Based on the other houses in the area we'd looked at and bid on, we knew this was simply an introductory price. For example, a short sale across the street was listed at $230K and sold for $265K. A house listed at $204K sold for $237K, etc. Our 10-day window to back out without losing earnest money ends tomorrow, but the appraisal isn't for 6 more days.
Our first couple of bids (which we lost) were $5-10K above list. This time, we really liked the house, it was in the neighborhood we liked and $250K seemed like a good value for the house. We were selected from 12 offers.
Then we had our inspection. The inspector noticed (among other things) the stove didn't work, some of the faucets leaked, and for some reason the vent pipe from the laundry room was cut off, in the basement, meaning there was a vent pipe missing from the roof and they had put some kind of cap on the hole in the roof. The other major issue was on an addition (carport converted to rec room). The inspector noticed where some outside cracks in the brickwork had been plugged in on the corner of the addition, and the inside floor had sunk an inch or two in that corner as well.
We had a contractor take a look the next day and he advised that the main house wasn't affected, and that the settling could be stopped with further reinforcement. His estimate to add the supports (not to correct the settling) was under $2.5K.
Overall, the inspection revealed $5-10K worth of repairs we weren't anticipating, and pointed out that the AC, roof, and heater were all around 10 years old.
Basically, we began to feel $250K was a little high. Upon further evaluation of the market and given the needed repairs, we now believe a fair value would be in the $235-240K range. Most of the houses sell for $225-$235, but this one is bigger, has a finished basement, a very nice deck, and the addition. Also, the market is hot (there were 11 other bids). We still like the house, but not at $250K. My gut tells me the appraiser will give an estimate in the $235K range, but should we wait for the appraisal and risk losing our earnest money if the appraisal comes back at $250 or higher?
12-21-2012 12:26 PM
Do you have an appraisal contingency in your contract? If you do than the appraisal and the inspection should not be tied together because a low appraisal will allow you to walk away as well.
In terms of the issues you noted, the situation with the rec room/former car port is definitely the most serious. The faucets and stove are much cheaper fixes. Overall I think that taking a look at your alternatives (other houses in the same area or other similar priced areas that you like) should help frame the decision you make. If there are reasonable alternatives and you feel like you are overpaying than perhaps walk away. If on the other hand you don't have attractive alternatives you may be better off sticking to the deal.
12-21-2012 09:02 PM
Yes, there is an appraisal contingency, but the problem is that waiting for the appraisal is a gamble because the inspection contingency will have expired before then. My gut tells me the appraisal might come in low, based on the condition of the house (worse than we thought) and the other sales in the neighborhood, but I don't know for sure.
I guess what I'm saying is that I still like the house, just not at $250K. If the appraisal comes in at, say $235K, we'd ask the bank to come down to the appraisal price and would be comfortable with it. If it appraises for $250K or more, then we'd be inclined to walk but would have to forfeit the earnest money.
I suppose the only other choice is to ask the seller to bring down the price based on the inspection, and we'd need to do that soon. Do you think that's a viable option?
12-21-2012 09:04 PM
You can always try to ask but the likelihood of the bank coming down on price is fairly low. If however you no longer want to do the deal at 250k see if you can get the price reduced, just don't have an expectation of a high probability of that happening.