If you know anyone who has bought or sold property in Portland within the last year, you have likely heard stories about needing to “waive the appraisal” to be the winning bid on a home. While this strategy has been in play for a number of years, it now seems to have become a staple of nearly every winning offer in competitive multiple-offer-situations. But, what exactly does it mean to waive the appraisal?
To understand this concept better, let’s start by looking at the normal process for an appraisal during a real estate transaction.
When a Buyer finances the purchase of a home, the Lender requires a third-party Appraiser to inspect the property, and provide an opinion of value for the home. In order for the home to qualify for financing, the appraisal has to come in at or above the agreed upon purchase price, and also be free of any conditions or required repairs (more on that later). If the appraisal comes in below the agreed upon purchase price, then the home does not qualify for financing at that price, and the Lender will only provide financing that is based on the appraised value.
For example, if you are under contract to purchase a property for $600,000 with 10% down, your Loan-to-Value ratio would be 90%, meaning the Lender is financing 90% of the purchase, or in this example, $540,000. If the appraisal came back with an opinion of value of $575,000 for the home, the Lender would then only agree to provide financing for 90% of that amount. In this case, $517,500.
In this event, neither party (Buyer or Seller) is obligated to move forward with the transaction. However, if both parties would like the transaction to move forward, the appraisal shortfall is then typically negotiated between both Buyer and Seller. Either the Seller lowers the price to the appraised value, the Buyer brings more cash to the table to cover the difference, or they split the difference in some agreed-upon fashion.
In today’s market, however, many Buyers are pre-negotiating a potential appraisal shortfall, and either guaranteeing to make up the entire difference in cash, or, offering to bring a predetermined amount of additional cash to closing — on top of whatever the appraised value is. While this is certainly an aggressive strategy (requiring additional cash reserves on hand), it is also effective, as it makes the offer far more attractive to a Seller, who now has more of an upfront guarantee on what their final selling price will be.
One of the obvious concerns with this strategy as a Buyer, is that you will overpay for a home, and give up some of the immediate equity that you might expect to have in the property upon purchasing it. While this is certainly a valid concern, in the Portland Market it has become a question, in many cases, of whether you would rather leverage some of your immediate equity, or perhaps not get into a new home at all. As a prospective Buyer, it’s important to make your offer as attractive as possible, when the Seller is selecting from a pool of 10-15 offers, so in most cases at least one of those offers will include this type of term. If you are not willing or able to, I totally get it. But, it may make for an uphill battle in terms of purchasing a home in the current market.
It’s also important to understand that with prices trending upwards as quickly as they are, the data available for appraisers to use in their valuations is not necessarily completely up-to-date. With the typical escrow period being around 30-days, the most recent data for sold homes that appraisers are able to use, is typically already close to a month old by the time your transaction closes. So, there is some lag time between the value that can be statistically supported by an appraisal, in comparison to what the market will actually bear. As prices continue to rise in Portland, the most relevant data is what is happening in real time, rather than what happened 3-6 months ago, or even last month. So appraisals aren’t always able to keep up with the market.
Enter: Appraisal gap coverage with cash.
As a potential Buyer in this market, I feel it is important to understand this concept upfront, because it changes the amount of cash that may be needed to successfully purchase a property. While the vast majority of transactions I have closed with appraisal gap guarantees ended up actually appraising at the agreed-upon purchase price (meaning no additional cash was required from the Buyer), it is important for Buyers to understand that the risk is always there. So, they should feel comfortable with bringing the additional cash to closing, in the event the appraisal does come in low.
So, how do you know how much cash over the appraisal to offer, or whether it makes sense to include this in an offer at all? Well, I can’t give away all the secrets, but whenever my clients are planning to submit an offer, the first thing I do is research the recently closed comparable homes in the neighborhood to get a sense for the value I feel an appraisal would come in at. From there, we strategize on the offer amount, appraisal gap coverage amount to offer and overall terms. This is also where we ensure that the verbiage used to address how an appraisal shortfall will be handled is specific, and doesn’t leave the Buyer on the hook for any of those potential conditions or repairs that may be required by the Appraiser.
If you’re thinking of buying a home, or have questions about covering a shortfall on an appraisal, please feel free to call or email me anytime! I love discussing Real Estate, and look forward to catching up with you all soon.
Congratulations to my sellers on scoring a great buyer for their swoon-worthy vintage bungalow in Foster Powell!
My buyers Alexandra and Ray are first time home buyers and just scored on a great ranch house in Fo-Wo section of Woodstock- between Foster and Woodstock. They were fantastic to work with because they knew what they wanted and they were prepared to jump head first into this nutball of our early 2021 market where there is 1 house for every 20 buyers. After walking into what would become their house, the first thing they said was- we could be friends with this seller. The seller had quite the display of rocks, gems and minerals and before we got very far into the house, my buyers were ooohhhing and ahhhhing over the sellers collection- admiring and even naming some of the rocks. Once we got past the rocks we explored the house, a mid-century 900 sf with 3 bedrooms and 1 bathroom on an oversized lot graced by a front yard tree with a trunk the size of a truck. I could tel as we walked around that this was “the one” for them. They are also woodworkers and one of their strong wants was a home that had a great space to build stuff in, and this house has a newer oversized garage/ shop that is perfect for woodworking.
Dave used to live across the street from me until about 2 or 3 years ago (who can keep track of time these days?) when he and his partner divorced and he moved into an apartment a few blocks away. His oldest kid and my oldest kid have been besties since before they could walk or talk, and it was Dave and his 2 kids who we had our last out of our family bubble non-socially distanced get together with on March 14th, 2020 at my older son’s 10th birthday party. When we parted ways that day, we didn’t know when we would be able to get together again in such a carefree way because the following day we all went under lockdown. And nearly a whole entire year later, we are still waiting for that day.
Who doesn’t love getting an email from new buyers letting you know they want to work with you because you could be their dream agent. And that’s exactly what my buyers Liz and Alex wrote to me when they first got in touch. After we had a Zoom meeting, I could tell they were going to be dream buyers. Liz and Alex were looking for a home where they could start a family, live as close-in as possible on the east side, and wanted vintage charm out the wazoo.
My sister Jamie moved from our hometown of Portland to New York City to pursue a career in visual arts in 1999, before Y2K, before 9/11, and during the last year of the Clinton era. Along the way she met my now brother-in-law Paul, bought a townhouse in Brooklyn during the height of the recession for a rock bottom price, had my now 8 year old niece and adopted the sweetest little mutt who they named Zucchini- an homage to our childhood dog Squash. For the past 21+ years Jamie, and then Jamie and family, have spent extended amounts of time in Portland, usually at least a couple of months over the summer. They had vague plans of moving to Portland “some day” but no super motivating factor to do the hard work of packing up, figuring out where to live in Portland, and all that goes along with moving across the country. Then 2020 came and like millions of other folks, they re-evaluated where they lived, and the motivation to live closer to family (us) and to get out of the suffocating humdrum of life in New York during the pandemic became stronger with each passing month. We had fantasies of them buying a house in my neighborhood, Ladd’s Addition, and being walking distance from each other so our kids could easily go back and forth between houses.
My clients Elizabeth and Tom contacted me in early October. They were getting all their ducks in a row to start the home buying process within the first 6 months of 2021. After we spoke, Elizabeth got in touch with a great lender and it was after she spoke with the lender that they realized they were actually a lot closer to making home ownership a reality then they had anticipated. Once pre-approved, they realized that with rates below 3%, buying a home sooner then later to take advantage of the low low low rates was within their reach. Besides staying within their budget, location was the most important feature, and they knew they wanted to be as close-in as possible, preferably west of 82nd and within walking distance of places you would want to walk to and near transit so once the pandemic ends Elizabeth could easily get downtown to her job at Mercy Corps.
Five years ago I helped my clients purchase this great 3-bedroom home in Cully at 6001 NE Milton St.. Earlier this year my clients contacted me because they love the Cully neighborhood and were super intrigued by a new co-housing development being built by Orange Splot, called Cully Green. After doing their research they decided that they wanted to sell their home and buy a new home at Cully Green. And then the pandemic happened. But thankfully by the time they were ready to sell their home, we had figured out all the protocols for handling sales. We listed the home, got a great offer, and they just closed on selling this one. Next week- on to buying the new house in Cully Green!
The layout and flow throughout the home is absolutely ideal for a home of this size. Through the hall, you’ll find three bedrooms filled with natural light and ample closets. Also, a roomy bathroom with double sinks and stylish updates.
eady to buy a home, it was well into the COVID-19 outbreak. Waiting it out wasn’t an option so we set out to see 7 homes one day; armed with gloves, booties and hand sanitizer. By the end of the day, Wendy and Jeremy wanted to make an offer. And they were ready. They were able to compete for a home that they loved because of their preparation and patience.
Cindy and Oscar got in touch with me in what feels like a lifetime ago- mid January of 2020. They were eager to become homeowners, and after having gone through the process of trying to buy a home last year only to have it implode with a very low appraisal, they were ready for a fresh start. New agent (me), new lender (Umpqua) and a new year. They love mid-century homes and were looking for a home that wasn’t in perfect cosmetic condition. They love to garden and were looking forward to having a yard for their beloved pup Cookie. In late February we looked at a a 1960 tri-level in a picture perfect mid-century block in Mill Park. The home hit most of their marks- it was in good enough shape to move into, had hardwood floors, mid-century charm, and a beautiful yard. They also wanted a home that would work for multiple generations for parents to move into eventually and kids in the future, and with the tri-level layout, it had the perfect floor plan for being able to do so. It also needed a face-lift, something Oscar and Cindy actually wanted to do on a home. It had been on the market for almost 2 months, and while it was priced lower than what neighboring homes had recently sold for, it definitely needed some vision and felt overpriced considering how much work it needed. They decided to keep looking and found another great mid-century home in Milwaukie that they loved and decided to put an offer in on. That home had multiple offers and went for way over listing price, so they did not get that house. But all the while, the sweet tri-level in Mill Park kept calling to them. So a little over a week after they first saw it, we wrote up an offer for $25k under list price. The sellers countered back with $20k under list and my buyers accepted.
Congratulations to Bea and David on getting the keys to their new to the home in Pleasant Valley. From start to finish their transaction was 32 days, and during this time, the world turned upside down and our planet went to war. The seller was Opendoor, which if you are unfamiliar with is an Ibuyer company that buys homes for cash off market and undervalue, and then slaps some paint and caulk on the house and puts the house back on the market at market value. I was out of town for President’s Day weekend when Bea and David decided to check out a house in Pleasant Valley that piqued their interest. Since it was an Opendoor property, they were able to let themselves in without me and what they found was a home that had parquet wood floors throughout the entire house, a tri-level layout, and decks with views for days on all levels. They were in love, so we wrote up the offer while I was still out of town, and the next day Opendoor accepted their offer. The first time I saw the house was at their inspection, and our inspector warned us that all Opendoor does is slap some lipstick on problems, and she has seen a lot of sale fails because of the poor condition of homes and Opendoor not willing to negotiate credits or repairs. Thankfully the inspection went fairly well- still a lot of work will need to be done to fix some rotted siding, roof and gutter issues and a few plumbing repairs, but overall it was one of the better Opendoor homes our inspector had inspected. Getting Opendoor to offer any credits was like trying to pull teeth out of a live tiger, but I did manage to get them a couple thousand in credit, which was better than a poke in the eye. And then right after we finished that negotiation, poof- the whole world collapsed. Thankfully my buyers were far enough into the transaction that we had everything pretty much nailed down so they were able to sign their closing docs- though I was not allowed to join them. The sale closed, and rather then me meeting them to give them their keys my buyers were able to get the keys from the lockbox at the house themselves. This was the first transaction that I can remember where I didn’t get to hand over keys or go to the signing. And like everything else in this new world, it feels strange and sad. But my buyers are thrilled and really that’s all that matters. They can focus on moving from where they are sheltering in place at their rental, to quarantining themselves in their new home.
My first time buyer August is smart, diligent, stubborn, fun and funny. Basically, dream client. And, I promised them I’d go skydiving, since they took a leap of faith with me. More on that one later.
Congratulations to Sarah, Scottie and Piggers! Thanks to impeccable timing they were able to get $35k in down payment grants through the LIFT program and University of Portland’s down payment program designed to help full time employees buy their first home near the UofP. Within a week of having the LIFT reservation in hand, we found a great rancher in University Park that checked all the boxes including what we thought would be a difficult to find huge detached garage for Scottie’s blossoming contractor business. This was the week before Christmas, and knowing that the LIFT funds expired in 2 months, and that most likely they were not going to see a house that checked this many boxes in their price range anytime soon, I suggested they offer just a few hairs over asking in hopes that the seller would accept their offer prior to the weekend, and it worked! Three days before Christmas they had their offer accepted, which was just 2 days before I left town on vacation for 2 weeks. Thanks to my excellent colleague Lisa Avena at Living Room who took great care of them and handled their home inspection, I was able to enjoy my vacation knowing Sarah and Scottie were being well taken care of. The inspection turned up a few unexpected surprises in the crawl space, but having a contractor buying a house always makes me feel better when a house is going to need some work. Even though the seller (who was also the listing agent) wasn’t happy, we were able to get him to agree to fix the big stuff. And then the appraiser called out some dry rot on the garage. Grrrr. By this time we were in mid-January and the market had clearly turned a sharp corner. In the 4 weeks from when their offer was accepted to the time the appraisal came back, the market shifted strongly into a sellers market with little inventory and a ton of buyers out shopping. The seller was very aware of this, and reminded me a couple of times that he had someone waiting in the wings who wanted the house badly enough because of it’s huge garage, that this supposed buyer would have taken the property as-is. So when I told him that the appraiser had called out that the garage needed to be repaired before the lender would loan on the property, he refused to the garage repaired. This would have been the end for most buyers, but Sarah and Scottie were not daunted. Scottie knew he could take care of the issue himself in less than a day’s work, so we got the seller’s permission for Scottie to fix the issue and Scottie got to work. Between the 35k in funds, finding the right property at the exact right time, and having the literal skills and ability to fix a problem, this family of three were able to close on the perfect house for them.
Upon entering you’ll notice vaulted ceilings and wonderful natural light. The floor plan flows easily into the formal dining room and formal living room, wonderful for entertaining and intimate dinners alike. You’ll love how the living room shines with an oversized picture window and soaring ceilings. Making your way into the heart of the home is the beautifully updated kitchen featuring ample counter space, storage galore and soaring ceilings. A dining nook and breakfast bar help to make this space feel both spacious and inviting.
Through the kitchen, you’ll find yourself in a spacious den with a big window and bookshelves. 
