Buying A House: C or D?

my understanding is that it's rare for an appraisal (of the kind you get when you buy a place) to come in below the offer price, in normal market conditions. The price someone is willing to pay is taken as a strong indicator of the value, though not conclusive. If you think it's overpriced then just offer less.

That said, I know a guy in my building who was selling his place and actually had to reduce his sale price slightly because of the appraisal, so it does happen. I'm not sure if being in a co-op had an effect on this. In any case, I wouldn't "bank" on it happening.

ok makes sense

for instance, the house down the street from me sold mid-last year and was appraised by the city at $X but sold for $X + $14K. I'd expect the next appraisal, in 2017, to be much closer to the sale price. There's a maximum they can bump the appraisal in one year, I think it's $10K (unless there are a ton of property improvements?) so it's go to $X + 10

Probably a good idea to read up on "appraised contingency":

http://www.investopedia.com/articles/personal-finance/102913/contingency-clauses-home-purchase-contracts.asp

One of three things can happen if the appraisal comes in lower: the seller can agree to lower the price, the buyer can bring additional money to make up the difference at closing (because the bank isn't going to loan you the additional money), or you can part ways.

Definitely not a good idea to bank on the appraisal coming in lower, because if for any reason it doesn't come in lower you're stuck with the offer that was agreed to. Offer what you think is fair, but have your agent give solid reasons (e.g. closest comps you can find) for why you're coming in so far under asking.

if it's an appraisal done by your lender, they might not even drive by, let alone look at the place. they'll look at the city's appraised value and run a report of similar nearby properties that have recently sold to see if the price is in line with what others have paid.

I forgot about the lender's appraisal -- I received a report before buying and it literally was short notes on the house's amenities, a listing of recent sales, and some comparison notes. The "appraised value" from the report was exactly what my accepted offer was.

thanks everyone! all this is super helpful

yeah, my lender's appraisal was literally our exact purchase price, and I understand that's typical. I think there are some checks to make sure it's not grossly out of line with what you'd expect someone to pay, because then there are concerns of fraud, fake transactions, etc.

also i know we talked about it the other day but i'm not sure how much to trust the zillow, trulia, redfin, etc estimates

house is priced at $221k but:

zillow estimate is $158k
trulia is $182k
realtor.com is $155k

(redfin estimate which seems most accurate apparently? isn't listed yet)

Also the bank wants to avoid lending out way more than the value of the house, bc the house is its collateral if the buyer defaults and they have to foreclose. In other words it doesn't want to lend out a million dollars, have a buyer who doesn't pay back his loan after two years, foreclose, and then only have a house worth 350,000 plus whatever the buyer paid to date -- that'd be a huge loss.

I wouldn't put too much faith in any of the website appraisals. They use algorithms that crunch a bunch of different factors, and you don't know whether everything that makes the house valuable has been included in the algorithm. e.g. I don't know if they account for fancy appliances in kitchens, or "views" or desirable aesthetic qualities (like maybe it's just a really pretty house compared to other similar sized houses in the neighborhood). I would look at how much the home last sold for and what typical price appreciation has been in the neighborhood. I'd also look at similar houses and what they've recently sold for, and then ask yourself whether there's anything subjective or objective that makes this house more desirable than those.

an acquaintance's stepfather is banned from real estate transactions in a few states because that was one of the way he was gaming the system -- houses he was "selling" either by contract sales or on contingency (super shady) were through one mortgage agent, who used the same lender appraiser every time. the properties would be appraised for considerably more than they were worth, leading to all kinds of unscrupulous things

the house i bought sold for 206 and was appraised by the bank as worth 217; it actually made the bank more inclined to give me a mortgage.

Best indicator of how a market's doing is by looking at what recent homes sold for by $/SF. Put the online appraisals aside.

Also check to see if your county assessor keeps records online. You can see for yourself what homes have sold for versus what the county has appraised them for.

many xps - we have put the equivalent of a down payment into stocks instead of buying a house, for a few reasons; prices are insane here, and my FIL (a CFO and also kind of amazing at the stock market) advised us that at our age we should be taking financial risks for bigger rewards. and the thing about owning a home at the end of it, instead having nothing when you rent... well, you always need somewhere to live, right? like, if i buy a house today for 200k and in 5 years it's worth 800k, i'm not gonna come out ahead if i sell unless i downgrade pretty significantly (way smaller, way shittier condition, terrible location). i guess if you're really old when you sell, and move to a retirement home, then you make some money out of it. also: buying a first home seems stressful enough - i can't imagine buying a home AND trying to sell one at the same time.

If you buy a house today for 200k and in 5 years it's worth 800k (which would be a ridiculous and virtually unheard of return btw), you could always take that profit and use it to pay all of your rent for the next 15 years instead of buying a new house. And even if you use the profit to buy the next house, it's still equity.

"advised us that at our age we should be taking financial risks for bigger rewards"

i dont get this... the fact that yr so highly leveraged with your house means you're taking plenty risk i would have thought?

and with the other example, if yr house goes up by 600k you could sell it and go back to renting, and then yr back in the same position yr currently in. but now you have 600k extra rather than just yr downpayment increasing by whatever the stock market's gone up by.

(xp what man alive said)

Buying a house is basically the rare time the average person can take advantage of leverage in an investment AND not be doing something financially insane.

I don't know about everywhere else, but the way the Atlanta housing market has gotten so lopsided re: rents made buying a house the only way I'd be able to afford to keep living here (without getting a roommate...and I'm too old for that shit).

skyrocketing rents was definitely a big reason for us buying, wanted to hedge against huge increases and avoid having to move when not ready.

That might be less of a thing for marrieds/co-habitators because of the dual incomes, but as a bachelor who isn't rich, it was my only option besides a slum or living out in the sticks.

xps obviously i was just pulling a number out of thin air! you don't have to take it literally. and if property prices are high, rents tend to be high too. it's also a lot harder to cash-out from owning a house at the right time than it is to liquidate stocks. if we have to move house on a schedule that isn't of our own choosing (job loss, family issues, etc), we could take a massive hit in having to sell a house in a certain time frame. it's also easier to sell and buy stocks than it is to sell and buy houses!

this is the $221k house i mentioned, https://www.redfin.com/OH/Lakewood/2185-Northland-Ave-44107/home/70837341/normls-3809784, it is super nice, still feel like it is more of a $200k house but in the current lakewood market i could see it selling at the list price, it looks like it's in great shape and has had some updates. one across the street that is virtually the same style but not as many updates sold for $196 a few months ago, so maybe the price is right idk.

for $221k though i think we'd want something bigger though. lots of the homes in lakewood have huge finished (or potentially finished) attics that this house doesn't have.

I was watching Blue Velvet yesterday and noticed nearly every house in the neighborhood the main characters live in look like the houses marcos has been linking :)

haha neat

if i buy a house today for 200k and in 5 years it's worth 800k, i'm not gonna come out ahead if i sell unless i downgrade pretty significantly

I was talking to my kind of manic / thinks-before-he-speaks neighbor the other day about housing prices going up noticeably here and he was talking about how much he could sell his house for compared to what they paid for it three years ago and why wouldn't he do that, wouldn't it be amazing, think of what we could do with the money and the whole time I was thinking "where are you going to live, dumbass?". Then this aspect dawned on him and he looked incredibly sad and dejected.

One could move someplace less desirable. For us, the location is probably 75% of the value of the house (close to subway / shops / restaurants). Once the kids are out of school we could probably buy a more boring house in a more boring place, and come out ahead. But yeah, if when you sell you want to trade up or across or stay in the same location, you're pretty screwed.

I think the point is that you die and your kids, who were already paying rent on their cruddy post-college apartments, get a big windfall. And you don't need a place to live because you're dead.

tbh, I've been thinking of selling my house in SoCal and buying one in Lakewood, I'd make out like a bandit!

Bought my first house for $68K and sold it seven years later for $100K.

But obviously I'm a real estate genius, your miles may vary.

I will say it's a whole lot easier buying a little house and selling it big than it is to invest in a home over 2000-SF and expect the same return in the same amount of time.

Well we met a couple of buyers' agents and we definitely liked one more than the other so I guess we have a buyers' agent?

68K to 100K in seven years is around 6% per year -- a solid investment but hardly amazing, sry.

saw this house this weekend http://www.zillow.com/homedetails/1449-Cohassett-Ave-Lakewood-OH-44107/33502498_zpid/, photos aren't great but wow it was pretty stunning, in great shape too. new windows, new central air (with radiator heat, not v common combination), updated kitchen. one of many beautiful homes on a gorgeous tree-lined street. we would've made an offer instantly but there were some complications w/ the school boundaries. we have a special needs kid and have been doing research on the town's schools and we were told by a reliable source to strongly avoid the school for this area, otherwise it would've been it!

i ended up finding a rental, it will be much easier to look once we live there

We bid more than we should have on a house and our offer was accepted. Stressful decision as to whether to go with it or walk out and return to the also-stressful state of continuing to look.

Can you afford it? Is it likely to appreciate in value?

saw a house today that formally checked all our boxes of things we have decided we want, and was at the very top of our price range, and spouse and i both felt "somehow we don't want to spend this much for this house, nothing about it really excites us"

on the one hand, feels like the right decision, on the other hand, i worry we're so picky we'll never buy a place

The stressful state of being stuck with payments you can't afford is a lot worse than the temporary stressful state of continuing to look for a house. People back out all the time, no harm in it. xp

xp i worry that too, though if it takes a year of looking, that's fine. we want to be excited about the place we're buying

and I'm definitely an advocate of not spending the top of your price range, because most people (myself included) tend to be overly optimistic about what will be affordable. What I thought was the top of our range would have been a mistake for us.

seandalai, is it a lot more? how much would it affect your monthly payment?

Here's a good story about not buying a house at the very top of your budget.

I lost my job 7 months after I bought my house. The job I eventually got pays a little over half of what I used to make. I still live in the house, though.

Yeah I think we can afford it but we probably offered more than it's worth and we're confident we could find something nicer if we stuck out there a bit longer. The stress is all of our making, we could just declare victory and take what we have.

take whatever you think you *could* pay and divide by three

I think 1/3 of take-home pay spent on total housing expenses (mortgage plus taxes plus insurance plus presumed maintenance costs) is a good rule of thumb to shoot for

In London or Cambridge unfortunately that would be wildly optimistic for most.

Getting a good survey done is essential if you're on the fence about affordability.

moving forward with various foreclosure-like possibilities, short sale, deed transfer back to loaning bank, etc. on the one hand blah & lol @ us for buying a house in an isolated usa college town, but on the other hand, we're not making any money on this sale in any case & we just want to be done with it.

i've posted this house a few times but it has dropped to 2/3 of its original listing price from last year, it is only $200k!!! it's not the neighborhood we're looking in but it is a rad neighborhood, one of you just please move to cleveland and buy it!!! http://www.zillow.com/homedetails/1842-Cadwell-Ave-Cleveland-Heights-OH-44118/33656241_zpid/

Maybe if I get a 100% remote job. Do they have good internet in Cleveland