How to Win Multi-Offer Situations (Seller's Edition): The Appraisal

With highest and best offer situations happening every weekend, selling a house has become more like an auction: buyers put together their best possible offer at the highest price within their budget. It would seem to sellers that they should always accept the highest offer on the table, but there is more that should be considered.

What if the property doesn't appraise?

I always advise buyers who are financing the home to put in the offer that "the property must appraise at or above the sale price". As part of the mortgage underwriting, the lender will perform an appraisal to determine the value of the property based on several criteria, some of which are comparable recent sales, the municipality, the neighborhood, and many other data points. If the appraisal comes back lower than the offer price, the appraisal contingency will give the buyer an out if they are not willing or able to cover the difference in cash. That then gives the buyer the opportunity to either renegotiate the price with the seller or cancel the offer.

What does this mean for sellers?

It can be advantageous for sellers to have an appraisal performed privately before putting their house on the market so, in the event they receive multiple offers that include financing as the source of payment, they can select an offer that falls around where they know the home will appraise so as to avoid an excessive offer falling through or having to renegotiate the price later.

What about a cash offer?

If one of the higher offers you receive is cash and they have proof of funds, take it! There will not be an appraisal and there is much less risk that the deal will fall through.