What happens when a home appraisal comes in low?

Dave,

We sold our home last year and during the process our appraisal went by without a hitch, actually everything went as well as we could have hoped for. However, recently it was brought up in a discussion between my wife and I—what happens if the appraisal on a home comes back less than what the buyer offered? Are the buyers able to change their offer accordingly or are they contractually obligated to continue through and purchase the home with their original offer? Like I said, the appraisal on our house was smooth as silk, but it just got us curious about what the options would have been if things had not gone so smoothly.

Thank you for taking the time to answer our question!

Sarah and John, Grand Junction

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Sarah and John,

Congratulations on your smooth transaction last year! It’s always a blessing when all aspects of a sale go smooth and without any significant speed bumps. As I am sure you are aware, speed bumps are just part of the process and a low appraisal can be one of the most significant speed bumps one can encounter on the road to closing! 

Low appraisals become more common when a market gets very active and rapidly appreciating prices are hard to substantiate with past sales. It can also be an issue, like it was here in 2011 & 2012 when the large number of foreclosures cloud the data and keep an artificial lid on potentially rising market values. Luckily on the Western Slope we have been seeing very sustainable and verifiable appreciation levels and although we occasionally see low appraisals, it is the exception not the rule. When an appraisal does come in low, there are several options, but all the options generally lead to give and take from both parties involved in the sale.

Unless the buyer waives their right to an appraisal, there is an appraisal provision in every Colorado contract to buy and sell that provides the buyer an escape clause if the home they have under contract does not appraise at the contracted price. There is no contractual obligation to purchase any property that does not appraise. In fact, Colorado real estate contracts are designed with the intent to protect the consumer. Remember, if the appraisal comes back low, you still have options.

“The first most logical option would be to get a second appraisal, if both parties agree that the first one was, for one reason or another, not as accurate as it could have been. ”

The first most logical option would be to get a second appraisal, if both parties agree that the first one was, for one reason or another, not as accurate as it could have been. If the lender will allow a second appraisal, then this is a reasonable choice and both parties can hope that the value comes in at the contracted price.

The next option is to amend the purchase price down to the appraised value. This is not a very popular option for sellers, however very popular with buyers! Funny how it works out that way. On the flip side, the next option is to keep the agreed upon purchase price and have the buyer make up the difference between the appraised price and purchase price in cash at the time of closing. Funny how this is a very popular option for the seller, however not very popular with buyers. Another option, and by far the most popular, is they meet in the middle. Say the appraisal comes in $6k low, the seller lowers the price $3k and the buyer brings an extra $3k to the closing table to bridge the gap and get the deal to the closing table. 

Ultimately a low appraisal generally comes down to how bad the buyer wants to buy and how bad the seller wants to sell and thus the reason that the “meet in the middle” option is the most popular! There are far too many scenarios to go over here, as a low appraisal can have other, more far reaching impacts.  More often than not it just takes everyone coming to the conclusion that a win/win is better than a loss!  Count your blessings and I hope this gives some simple insight into a complicated and very unwanted situation!  

Dave Kimbrough
The Kimbrough Team

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5 Tips for Getting a "Good Deal" When Buying a Home

Dave,

We have recently married and are hoping to start a family in the next year or two and want to purchase our first home before having children. We currently rent, but feel the time is right to begin looking for our first home. It is extremely important to us that we get a good deal. Getting a good deal is number one on our list of priorities, as it will help ensure that our home purchase will not only turn out to be a great place to live, but also a good investment when we eventually need to sell. What tips can you provide for getting a good deal?

Stephanie and Mark, Fruita

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Stephanie and Mark,

Great question as getting a good deal is always at or near the top of many home buyer list. First make sure you define your idea of a “good deal”. There is a difference between a “good deal” and a “steal”. Steals are a lot harder to come by and there are many lost good deals in the quest of a getting a steal. I have heard a saying that says, you make your money when you buy, not when you sell and I believe it to be true. There are several things you can do to help ensure that you get a good deal when you purchase.

1. Get Educated: The more you know about the market and the price range in which you are purchasing, the more likely you are to get a deal when you purchase. Knowledge is power and part of getting a good deal is being able to recognize one when you are presented with it and making a realistic offer.  I have seen many a “good deal” lost because the buyer did not recognize the deal and did not make a realistic offer.

2. Find a Knowledgeable Real Estate Agent:  Notice I said knowledgeable. Again an agent who can help you not only find, but identify a good deal is a huge asset. You need an advocate who is scouring the market for you, looking for that “just right” deal.

3. Use a Reputable Local Lender and Get Prequalified: Once you have found your “good deal” you need to be ready to pounce and pounce with confidence that the sellers can appreciate. A reputable lender behind you will help you beat out other bidders. Trust me, sometimes it’s not all about how much the offer is, sometimes it’s more about how likely is it to close. The prevalence of fly by the seat of their pants lenders adds weight to an offer backed by a reputable and trusted lending partner.

4. Be Decisive: Part of the art of getting a good deal is the skill of being decisive. Don’t hem n’ haw, when you decide to act, act decisively and don’t look back. Steps 1-3 above will help you be decisive. I have also seen many deals get lost, while waiting on a decision.

5. Get a Good Inspection: Part of getting a good deal is making sure that your good deal is still a good deal after you close. Your good deal, may not be such a good deal if it needs a new roof after living there 6 months.

These are not the only things that you need to do to help ensure you get a good deal, but they are in my mind the most important. If you follow these 5 simple steps, you will be well on your way to getting that deal in which you seek. Much success in your pursuit of the often elusive, but always rewarding good deal! Happy New year! 

Dave Kimbrough
The Kimbrough Team

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Tips for Making a Strong Offer on a Home

Dave,

We’ve got a few questions on home prices. Do Realtors list homes at a higher price knowing that most offers will come in below asking price or are homes listed for close to their estimated value? We are going to be looking for a home in the upcoming months and are wondering how we should determine what to offer on a home if we find one we like. How do you determine value and what to offer? Furthermore, what happens if an offer gets rejected? We are just trying to figure out how this part of the home buying process works. We love reading your column each week!

Thanks,

Jody and Tom, Grand Junction

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Jody and Tom,

Ok, you do have a few questions, but they are all good ones! I will do my best to answer them all, but excuse my brevity as my space is limited. The way Realtors price homes varies from agent to agent and market to market. Some agents will do just what you are talking about, price the home above market value expecting a lower offer. With this technique the agent builds in cushion to come down when the lower offer arrives, but also risking that the price is far enough above market value that it gets skipped over by prospective buyers. Other agents will try to price the home in line with sold comparable properties, within the past 6-12 months is best, and then adjust up or down depending on market conditions and competing listings.  Pricing is at least as much art as is it is science and there are a hundred ways to skin a cat. The more you try to figure it out, the more confusing it will likely be. Your primary goal should be to not try and decide how they priced the property, but have your agent help you determine a fair price for the home from comparable property sales and similar active properties and make what you believe to be a fair offer.

“When you find a property you want to make an offer on, your agent will be able to help you determine a fair offer price.”

When you find a property you want to make an offer on, your agent will be able to help you determine a fair offer price. I find that most buyers look at quite a few homes before purchasing. By the time they decide to make an offer, they have a good feel for the market and know what asking prices are and are not appropriate for the market conditions. If you and your agent determine that the price is higher than it should be then feel free to provide the comparable properties you used to determine your price when you make your offer. Many times the list price is not the agent’s suggested price, but the price the seller “needs” or “wants” in order to sell. Keep in mind that price may or may not be in line with the market, but providing a thought out analysis for why you are offering your price might help “make your case” with the seller and the seller’s agent. Whenever you make an offer at less than asking price you always run the risk that it will not be well received and even rejected.

Rejected offers are never the goal, but depending on your offer price sometimes they are the only way for a seller to respond. If the offer is insultingly low (greater than ten percent) then a rejection may be the best way to respond. A rejected offer by the seller can be received by the buyer in one of two ways. It will either be received as “take a hike” or it will be received as “reload and try again with something closer.” On a rejection, the choice of how you respond will be up to you and dependent on how much you really love the home. You can either reload and try again with a higher offer, or move on to your next choice! Keep in mind there is no playbook for how these things work and that is why the agent you choose to work with is of the utmost importance.

Choosing an agent who is experienced and has a proven track record is a critical part in helping you pre-determine your desired result. If you are out to sea and find yourself in the middle of a storm, big or small, would you rather have a captain that has been there, done that and survived or a green horn who not only does not know what to do, but is looking to you for answers and direction? The answer is obvious. Experience is undervalued when the going is easy, but there is no doubt about its value when the going gets tough! How about that for some free life advice while answering a real estate question! It’s because of questions like yours that this column exists, so thanks for reading. Best of luck.   

Dave Kimbrough
The Kimbrough Team

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Common Home Buying Questions Answered!

Dave,

I’m going to start looking at purchasing a home this fall and I have a few questions about the process. About how long does the home buying process last for most of your clients? I know you’ve worked with a lot of people and will have a pretty good idea of what the average time frame looks like. I’m planning several trips this fall and winter and want to make sure I’m settled into my new home before leaving. Also, about how many houses should I look at before making an offer on one I like? Is there a good number to use as a gage? If I find a home that checks off most items on my list, should I continue looking to make sure it is the best option or just put in an offer? I’ve heard you should go with your gut, but I’m not sure if that’s the best advice.

Thanks for your guidance!

Jeff, Fruita

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Jeff, 

All great questions. The home buying process can be overwhelming if you let it, but you are starting the process by asking some great questions and clearly will be entering the fray with a laid out plan! Keep in mind that you are entering the housing market at a time that is moving quite briskly. When you are shopping for a new home in a hot market you have to throw some caution to the wind or you will constantly find yourself on the outside looking in and missing out on home after home. 

The length of time the home buying process takes depends on each individual. Everybody learns at a different pace and everyone evaluates homes and the market just as differently. It’s funny, sometimes we see a husband who is very cautious and a wife that is eager to pull the trigger! Their yen and yang is probably why they work great as a couple, but the same yen and yang can prove very difficult during the home buying process if they are not working synergistically. I would recommend you don’t put a time limit on yourself, but do make sure to spend enough time to get educated about the market and the houses in, above and below your targeted price point. This may take one day for some or 30 days for others. It purely depends on the person. 

The number of houses you look at is also individually subjective, but you need to see enough houses in and surrounding your targeted price point to make sure you can identify a good (or bad) deal when you see one! Your agent should be able to help you identify what is a good deal and what’s not, but you want to make sure you have a good feel for that on your own. 

Once you feel like you have a good feel for the market and start looking in earnest don’t be afraid to jump if you find the right one quickly! Listen, if my wife had not jumped when she did, I am confident I would have been swooped up by another looker shortly thereafter! All kidding aside, the good ones go fast (and that’s what I keep telling her) and if you wait, someone will swoop in and snag it! If you have educated yourself properly about the market then this is where you should trust your gut. Trusting your gut is easier to do, with confidence, when you have spent the time educating yourself about what you are doing.

“If you find a house that checks off most, but not all of the items on your list, don’t just overlook it and pass it by because it may very well be the one.”

Remember house hunting is full of trade-off’s. You will NEVER find the perfect house. Show me someone who is looking for the “perfect” house and I will show you someone who is wasting their (and their Realtor's) time and will likely end up very frustrated. If you find a house that checks off most, but not all of the items on your list, don’t just overlook it and pass it by because it may very well be the one. I believe when you see the one, you will know (or at least have a good idea) it’s the one! When I found my personal house it was a disaster, but I knew it was the one! It had many, many flaws, but they paled in comparison to its strengths and I could see the end result even back then. 

Bottom line, when you shop for your new home, be aggressive. Being passive won’t get it done if the house is new to the market. Sometimes it does take time, but don’t be afraid of fast because sometimes fast is the most fun and packs the biggest reward. You are going to do great and I have no doubt you will find the perfect house.

Dave Kimbrough
The Kimbrough Team

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7 Tips for Winning a Home That Has Multiple Offers

Dave,

Some family friends just bought a home here and after hearing the details of their experience, we’re a little intimidated to start the home buying process this summer (we’ve been planning and saving to purchase a home—and we’re almost ready!). Our friends said that the home they ended up buying was actually the fourth home they had written an offer on. The first three homes they wrote offers on had additional offers and obviously, their offer didn’t win the contract. Their agent said it’s just the nature of the market in their price range right now. We’re in the same price range ($225,000—$250,000) and don’t have much wiggle room to move up in price. Aside from increasing the amount we offer on a home, do you have any tips on how to win in multiple offer situations?

Please help!

Marissa, Grand Junction

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Marissa,

Wow! Your observations are absolutely correct! The segment of the market that you are searching in is moving at a very brisk pace and the competition can be fierce! Multiple offer situations are happening with more and more regularity, so as a buyer, you must be ready and willing to put your best foot forward right out of the gate. If you hesitate or make a mistake, you decrease your chances of success exponentially. Don’t be afraid to compete! It’s a bit like dating…If you find just the right one, be prepared to compete and win! Grab hold of a competitive mindset and remember most houses are lost over a fairly small sum of money or an overlooked detail that would have cost nothing! 

There ARE some simple things that you can do to help move your offer up in the pecking order when the offers are presented to the seller!

1. Be willing to offer more than asking price or include an escalation clause that will automatically increase your offer over and above the next highest offer up to a price ceiling! I have seen many an offer lost over $500 or $1000. If you really want the property and there are multiple offers, go 1-2% over asking price and watch your chances soar! If the home is $225k, offer $229k and my bet is you get it.
   

2. Offer more earnest money than what the seller is requesting. Earnest money is often times an overlooked negotiating tool that absolutely DOES mean something to a seller and can tip the scales if the offer prices are similar.
   

3. Be flexible with the closing and possession date. This will show the seller that you are willing to work with them and make the transition fit their needs.
   

4. Be willing to cover your own or at least part of your own closing costs. Over 70% of the offers I see contain seller paid closing costs. Eliminating these closing costs indicates to a seller that you are a stronger buyer. After 16 years and thousands of contracts negotiated, it is a fact that most sellers would prefer buyers pay their own closing costs.
   

5. Do not ask for personal property or things that the seller is not offering as inclusions with the property. If they have not included the nice new looking refrigerator, don’t ask for it. If you find their lawn furniture comfy don’t try to throw it in, go buy your own. I have yet to find a seller who looks upon request for personal property with a favorable eye.
   

6. Be willing to waive your inspection contingency! If you do this, it will be clear to the seller that you are making a serious offer and have serious intent to purchase the home. This is the last resort move, however, it is a doozy if you have confidence that the property is in good condition or you can handle whatever problems you uncover.
   

7. Use a local lender that has a good reputation! Accepting an offer where the lender is local will sure make the seller and their realtor feel better about the chances of seeing the closing table.

“These are several techniques to help you up your game in this increasingly more competitive real estate market. Notice that none of these are high dollar techniques or anything really fancy, but I promise they can make a difference.”

These are several techniques to help you up your game in this increasingly more competitive real estate market. Notice that none of these are high dollar techniques or anything really fancy, but I promise they can make a difference. If you combine 2, 3 or 4 of these techniques in the same offer you will probably have an unbeatable combination. Remember sometimes it takes a little courage, faith, and risk to get what you want so don’t let fear or hesitation hold you back from making things happen. When you craft your offer with your agent, look at it through the eyes of a seller, be willing to think outside of the box and create a win/win for both parties and I bet you have a new home in no time at all. I’ll bet the next time you submit an offer, it will be FUN!  Good luck.

Dave Kimbrough
The Kimbrough Team

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How much do neighboring properties affect your home value?

Dave,

We have been watching a couple of homes that have been on the market for a couple months and we would be happy with either, but we really do like one of them quite a bit better than the other. Neither are perfect, but the one we like the most has two homes on the street, one right next door, that looks like it has been completely neglected and has junk everywhere.  When we drove by a couple times last weekend it had two cars parked on the front lawn virtually all day Saturday. We are very interested in the home but have big concerns about the impact these two homes are having on the neighborhood. What do you recommend? Thanks.

Donna, Grand Junction

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Donna,

Great question and you have good reason to be hesitant about purchasing if the next door neighbor looks like a dump. There is no question that the surrounding properties have a direct impact on any home. If the neighbors do a poor job of taking care of their property, it brings all the other homes values down in the neighborhood. The questions I would have are, is it a relatively isolated incidence? Or is it a broader problem where there is a lack of a homeowners association or an HOA that lacks the authority or structure to enforce the covenants and keep the neighborhood looking its best?

I would recommend you have your Realtor pull a copy of the neighborhood covenants for you to look over and find out exactly what things are and are not allowed. I would certainly guess that parking of cars on the front lawn would not be in the provisions designed to bolster property values. Homeowners associations are designed to protect values and help enforce a consistency of product which leads to the solid maturity of a subdivision. If the neighbors appear to be in violation of the covenants then you could always contact the HOA and find out why the property is apparently in violation and what steps are they taking to get them into compliance? Don’t be afraid to investigate and ask hard questions, after all, you are considering making a significant investment in the neighborhood. I am making the assumption that there is an established HOA, if there is no HOA then all bets are off and what you see is what you get.   

“One of the first things I do when looking a home is to look at the neighbors. Good neighbors can help make you money and bad ones will no doubt cost you money. I would be very hesitant to invest my money in a home that has a poorly kept home next door. ”

One of the first things I do when looking a home is to look at the neighbors. Good neighbors can help make you money and bad ones will no doubt cost you money. I would be very hesitant to invest my money in a home that has a poorly kept home next door. Keep in mind that this could also change. Should the neighbor move out, then there is the significant likelihood that the home would be cleaned up and updated by a new owner. Find out how long they have been there etc. Do your due diligence and do your best to evaluate their long-term viability of them continuing to own the home.

To sum it up, make sure you do your homework and remember this is not just going to be your home, but it will also be an investment in your family’s future. Location is key, not just the physical location, but the location of eyesore properties nearby, so be careful of investing where you do not feel like the neighbors are equally invested in the integrity of the neighborhood. My bet is that if you are patient you will find a great home in a wonderful neighborhood and not have to be concerned with the surrounding properties. Hope this helps. 

Dave Kimbrough
The Kimbrough Team

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What You Should Know Before Buying a Home with a Septic System

Dave,

Our Realtor has shown us a few houses with septic systems—which we learned is actually pretty common here—and we hate to admit it, but the houses that have them have moved down our list for that reason alone. We’ve heard some horror stories! We got to thinking about it though and what if we find a house we love, but it’s on a septic system. What do you recommend we ask the seller and have done before buying to save us from having a septic horror story of our own in the future?

Thank you!!
Mike and Andrea, Grand Junction

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Mike and Andrea,

I completely understand your concerns and reservations. Septic systems are often times a worry, however I believe it is typically due to a lack of education on how they work and how easy it really can be to maintain a healthy septic system. In my opinion having a septic system is not a reason to rule your dream home out or even bump it down the list, unless it is showing signs of distress or failure! Yes, having a sewer hookup is easier and generally safer, but I have seen perfectly functioning septic systems that are 30–40 years old and are showing no signs of failure. Spotting signs of failure should be pretty easy.

Here are some common signs of septic system failure:

1. Slow drains, gurgling or “stuff” backing up into the home. If the drains are slow, that can be a sign of impending issues.

2. Unpleasant odors inside or outside your home. You will know the smell when you smell it. It most likely won’t be a, “honey do you smell that?,” it will be a “honey was that you?” odor. All kidding aside, it will be a noticeable sewage odor and something that should be looked into promptly.

3. Look for soggy areas, puddles or places where your lawn is growing like it is located in tropical rain forest! If you find any of these issues, this is telling you that the drain field is not properly draining and needs attention before your kid’s next birthday party!

“While looking over the seller’s property disclosure or going through the home inspection process if you notice any evidence or remarks similar to the above, then proceed with caution. ”

While looking over the seller’s property disclosure or going through the home inspection process if you notice any evidence or remarks similar to the above, then proceed with caution.  I know we often ask prospective sellers to have their septic tank pumped, it should be done every 2-3 years depending on usage, and inspected to ensure all looks to be in order. If you want to go the extra step, you can have the main line and the leach field lines scoped with a camera to help detect any possible latent issues with the system. Should all those tests come back with a good report, my suggestion would be to proceed with little concern. If the septic system is performing properly it should continue to maintain good performance for many years as long as you follow some simple rules.

Good rules to follow to ensure your septic remains trouble free. Items to never want to flush down your toilet include, but are not limited to, sanitary napkins, tampons, hair, coffee grounds, paper towels, condoms, or cigarette butts. Stuff you should put in the trash, instead of down your sink would be, chlorine, oils, grease, animal fats from cooking and really any type of chemicals. If the home has a disposal, be careful. Just because the disposal will grind it up and get it down the line does not mean that it should go down the line! Compost your kitchen scraps rather than shove them in the disposal or get yourself a new Labrador Retriever puppy and pretty soon you will have two disposals! 

The bottom line, do your homework on any septic system to ensure it is functioning properly and move forward with confidence. Education is the key to understanding and getting comfortable. Yes, there are septic horror stories, but there are horror stories about EVERYTHING if you want to find them. Lastly, guys remember it is Valentine’s Day this Wednesday...do yourself a favor and make a call to one of our local florists! 

Dave Kimbrough
The Kimbrough Team

Are we in a buyers' or sellers' market?

Dave,

We’ve heard that the market is hot for sellers right now and that enticed us to start thinking about selling our home…but we’ve also heard that there’s a shortage of inventory—probably why the market is so hot for sellers right now.

Is this truly how our market is right now? If it is, that makes it a little bit of a double edged sword for us. Should we sell and make great money off the equity we have in our home? But if we do, will we be able to find another house that we like if there’s such low inventory? What do you recommend in a market that’s like ours is now?

Donna and Frank, Grand Junction

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Donna and Frank,

Great question! Our market is the tale of two markets…those properties under $300,000 and those properties priced over $300,000 (particularly those properties priced over $400,000). First let’s look at the absorption rates we currently have in the market. You may ask, what are absorption rates? Well, the absorption rate is the number of months it would take to sell all the currently listed homes in the market. This is where we get months of inventory and that number is important as it helps provide a clearer picture of just how much inventory is available in any given price range and theoretically will allow you to better predict future trends in pricing and sales activity. I have heard it said that a healthy market is somewhere between 3 and 6 months of inventory! Less than 3 months of inventory lends itself to being a seller’s market where the supply is short and the demand is high. More than 6 months of inventory would mean you are entering a buyer’s market, meaning more inventory than there is demand and the buyer theoretically holds the upper hand in negotiating power.

As of October 1, 2017 properties priced between $100,000 and $300,000 had 3 – 3.5 months of inventory, thus putting us in a very brisk market that is starting to really favor sellers. For properties priced between $300,000 and $500,000 we have 5.5 – 7 months of inventory, thus entering that area typically favoring the buyer. Note that there is not much in between! All that being said, we have a very brisk lower end of the market, a softening middle range and a “cushy” soft upper end (homes priced over $500k) where we have somewhere between 10 and 20 months of inventory. All that being said, overall the market is as solid as we have had since 2008 and we are no doubt going to see the strongest sales figures, across all parameters, we have seen in nearly 10 years! It has been amazing and we should all be very thankful to have 2009-2012 well in the rear view mirror! 2017 has been an incredible year for housing and I fully expect 2018 to continue this trend, albeit maybe with a little more pressure on the gas in the lower end price ranges.

“You are most likely correct about the “double edged sword”, because when you sell and buy in the same market everything is relative! This means that if your home has gone up 10%, then so has the home you are likely to replace it with.”

You are most likely correct about the “double edged sword”, because when you sell and buy in the same market everything is relative! This means that if your home has gone up 10%, then so has the home you are likely to replace it with. The exception to this in our market is when you are making a significant move up, let’s say from $350,000 to $550,000. If you are making that kind of move up, sometimes you can make up a little ground as the lower priced home appreciation has outpaced the upper end for quite some time. Low inventory is an issue and the good ones generally sell quickly. If you are pondering a move you need to focus on being flexible, as perfect timing can prove as elusive as a Sasquatch sighting! Be prepared to sell and then rent or have somewhere to burn a little time in between properties if the timing does not work out perfect. You might consider looking at new construction, as this provides you the ability to plan as you attempt to “time” the events of selling and buying!

I find, time and time again, selling and buying are a lot like life! It will be what you make of it!  Everything might not work out perfect, but really what does? Jumping a few hurdles is generally a good thing and it makes you appreciate the smooth times even more! Go ahead and jump in feet first, the water is only really cold for the first few seconds!

Dave Kimbrough
The Kimbrough Team

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