Monthly Archives: September 2009

Real Estate Values Set by the Golden Rule

Whoever has the gold makes the rules

Whoever has the gold makes the rules

I was thinking that this post should be called the 57 day blog sabbatical since my last entry was August 3rd.  But, that’s a topic for another day.  I think I’ll title that one ‘Do busy real estate entrepreneurs really have time to blog’?

We’ve all heard about the golden rule.  It’s from The Bible.  Matthew 7:12 to be exact and it goes like this, “So whatever you wish that men would do to you, do so to them; for this is the Law and the prophets.”  But, in real estate we follow a different rule which was first written in a 1971 ‘Wizard of Id’ comic strip titled ‘Whoever has the gold makes the rules’.

In your market and mine banks and buyers with cash will determine market value, not the no-money down buyer and certainly not the appraiser.  Why?  Because whoever has the gold makes the market value. 

Ask yourself this question…if a home does not appraise for the asking price what happens?  Either the seller amends the contract to the lower sales price so the buyer can get their loan or the buyer must come in with extra cash to pay the difference.  If you are the seller in this scenario and lower your price the bank has dictated market value.  Even if you received multiple offers above your asking price (this just happened to me on a property I have) the bank will honor the appraisal, not the market interest in your property.  As a matter of fact, the banks will go to great lengths to disprove their own appraisal by ordering a ‘review appraisal’ in hopes they can find lower comparables to drive the price of your home down even further.

On the other hand, an all cash buyer or buyer with some cash can step in and pay your asking price or cover the difference if getting a loan in the event that the home does not appraise.  If you are an investor these are the buyers you want.  Resist the temptation to get tied up in a contract with a no-money-down-first time-home-buyer if you know there could be appraisal problems.  And remember the golden rule, both of them.



Filed under Investing