About three weeks ago, a buyer came to me for assistance in buying the home she is currently renting. She had negotiated a price with the seller already, but was stuck as to how to proceed. I agreed to help her with the process and to provide the Idaho forms for a small fee, as she is the sister of a client of mine. The negotiated price was $105,000.
Fast forward to last week, and a message from the bank: the appraiser cannot support the purchase price value of the home! Can I please come by to see the home and perhaps find some additional comparable sales that would help? Of course.
While the complete appraisal has not been submitted to the lender yet, after seeing the home and the comparable sales, the purchase price agreed between the buyer and seller appears to be about $80-85,000: about $20-25,000 lower than the price the buyer agreed to! What to do? The options: 1) the seller can agree to negotiate down to the appraised value, as any future buyer will also likely need to finance the home and will have the same issue with the appraisal; 2) the deal falls. In this case, if the deal falls, because the buyer had agreed to making the earnest money non-refundable she will be out about $885 for the lost earnest money and the appraisal, which the buyer will still have to pay for as the appraisal work was done. Her credit has been accessed by the bank for the purpose of purchasing a home. Depending on the timeline until she begins a new search, she could loose a few points in her credit score, which could impact her ability to qualify for financing going forward. And should she decide to purchase another home, she needs to decide whether she will fulfill her lease or pay an additional cost to break it and move out early.
How could a buyer’s representative have helped? First, while the buyer was pre-qualified, it seems the home was over priced. The buyer would have previewed more homes in the price range and have had a better feel for the market and how much house her money could buy. Secondly, prior to making any offer on a home, comparable sales should be pulled to ensure the offer was within the proper price range and would likely appraise. Thirdly, having a guide throughout the process, from choosing homes to viewing them, pointing out features and potential issues (including financing issues), and having an expert to assist in negotiating the deal are all very valuable and sometimes under considered benefits of being represented.
And what is the cost? Ironically, because the buyer had agreed to pay me a small fee for my time, she actually paid MORE to not be represented! When a property is listed in an MLS, the Seller has already agreed to pay a brokerage fee, so there is no cost to the Buyer. When a property is a For Sale By Owner (FSBO), more often than not, the Seller will agree to pay a Buyers Agent because agents sell homes! And the FSBO still “saves” a percentage by not listing the home and paying two agents. I have yet to have to have to ask a Buyer client for payment because a Seller will not pay a Buyer’s Agent.
Now, this particular first-time buyer may be starting the home buying process over….with less cash in her pocket to boot.