What’s My Home Worth? The answer doesn’t have to be a WAG.

No one ever said the appraisal process was scientific or perfect. Certainly somebody from MIT, or Stanford, or the UW Math Department could create a system to pinpoint real estate value. Oh, it’s been tried. See your property assessment, or Zillow’s Zestimate, or the RPR Value. There are a multitude of these calculators out there. They all use quite disclaimers of their lack of dependability, but they whisper the disclaimer and shout their confidence.

A useful tool on the internet is the mortgage amortization calculators. They different than (WMHW) tools in that  we expect accurate information.  Accuracy doesn’t appear to be the goal of the WMHW tools we see. You do know the tool isn’t generating a product, right? You’re the product.  All of these tools are shiny machines to attract your attention. Everyone know we will give away our valuable privacy for  a peek at a cute cat or a bird that talks. Lead capture is the purpose of WMHW and other calculator programs. (You’re not even a number, you’re now a lead and you’re getting sold to who knows.) Oh, the program will put out a number for you. Some will give you a $90,000 range (the right number has gotta be in there somewhere). It’s not a dependable number and it comes with no evidence of support.

The widespread use of WMHW is concerning. These numbers do get used as starting point for home sellers and buyers, data for financial statements, as an idea to decide to refinance, dispute resolution, etc. I’d like to see them go away until someone builds something that works. Until then, there is a better way.  Of course the appraiser is your only resource for a report to satisfy a lender.  That appraisal may cost $500 and it’s likely to be worth the cost. If you don’t need a certified number, the Realtor® price opinion is still better than WMHW WAG. If the licensee, regardless of experience, is using a value adjustment process to arrive at an opinion, you can trust the number to be within 5.0% of what a typical buyer would pay to own your property at the moment.  The key is the proper input of relevant data, and a calculator.

If you want to know a number worth knowing and you don’t want to pay, talk to a Realtor®. If you want to be sold to the real estate industry, play with the shiny machine.

 

 

 

Appraisal Contingency…A dangerous poison pill

Seller beware. Wisconsin’s Offer to purchase (WB-11) includes an escape clause for the Buyer. The Appraisal contingency on page 5 of 9 of the Offer to purchase allows the Buyer the right to terminate the contract if the appraisal indicates an appraised value for even one dollar ($1.00) less than the purchase price. That’s an easy exit and great risk an informed Seller would probably not accept. Savvy listing agents will catch this poison pill before the owner accepts the Offer.

What, you say buyers are unlikely to terminate an offer for an appraised value slightly less than the purchase price? OK. I agree. However, what else is on the table if the Buyer has a right to terminate the Offer? Oh, I don’t know, how about EVERYTHING? Consider this. The appraisal gets to the buyer 30 days from acceptance of the Offer. We’re probably 15 days from closing. The Seller is not in a strong negotiating position at this late date, and all of the other buyers who’s offers the Seller didn’t accept are gone. An inspired Buyer may choose to ask for more than a price concession. The closing date, included items, repairs, credits, new inspections, testings are open for discussion.

In competition, (Seller’s market)Buyer’s and their Buyer Agents are wise to soften the appraisal contingency if it has to be included. Below is a condition Buyer’s can add to their Offers to make their Offer more palatable to the Seller, and it’s a condition thinking-ahead listing agents will discuss with the Seller before an appraisal contingency Offer is accepted.  (Counter-Offer)

Appraisal Contingency page 5 of 9, lines 264 through 269. In the event said appraisal indicates the appraised value is not equal to or greater than the purchase price, Buyer shall deliver to the Seller the appraisal report and an Amendment to change the purchase price to an amount not less than said appraised value. This amendment shall include no other conditions and allow the Seller at least 24 hours from Seller’s actual receipt of the amendment and appraisal to accept. Acceptance of this amendment satisfies the Appraisal Contingency. The Notice of termination provided for in the Appraisal Contingency shall not be sent to Seller by Buyer prior to the expiration of Seller’s deadline for acceptance of the price change amendment.

IMPORTANT: Seller is not obligated to accept the price change amendment, and may deliver a counter proposal to Buyer. In lieu of the price change amendment, Buyer may give Notice to Seller that the Appraisal Contingency is satisfied.

That’s a lot of words. You might have a better idea, but this is more safe for the Seller and still provides the Buyer with the protection the contingency is intended to provide.  It may be necessary to talk to the other agent to make sure they understand this modification.

Side Note: The current WB11 is old. We were still in the recession in 2011 when the form was introduced. Comparable sales were few and far between. Buyers had a distinct advantage (Buyer Market) and they could shift risk to the Seller. The appraisal contingency was almost non negotiable. When the market shifted to a Seller’s Market, this appraisal contingency, already firmly embedded in the contract and common practice started to work against Buyers. Those who did get their Offers accepted with this contingency found themselves in surprisingly strong negotiating position. We can do better than to end up far down the line, away from the crowd of buyers, and all alone with the Seller, standing between a rock and a hard spot.