Let's talk about Financing, Values (Appraised/Assessed/Market), and Additional Down

home value

Our financing contingency is an umbrella provision that allows us to dissolve the contract without breaching the contract if we can’t get financing for any reason. These reasons can be because the lender can’t meet deadlines, the underwriter doesn’t approve the buyer, or the underwriter doesn’t approve the home’s condition and its sale price.  If you want to waive the financing contingency altogether, we should first get an underwritten pre-approval (if the lending institution offers that), and we must have a conversation with all parties involved, including the lender.  The addendum used for the financing contingency has a default option for the seller to force the buyer to decide to waive the financing contingency after 21 days.  This is yet another reason we should have a reliable and reputable lender who can pre-approve a buyer through underwriting before making an offer.  

 

FINANCING ADDENDUM (22A)

The first section of the financing addendum requires us to state what type of loan we will be applying for and what the minimum down payment we promise to apply with. If you don’t know how much you’d like to offer as a down payment we can elect to use the lowest downpayment that the lender lets us.  You can always give more as a down payment to either avoid/reduce PMI, reduce your monthly payment, or reduce your interest rate but there may be reasons your loan officer and I may suggest to you to make your initial offer with a lower down payment. 

The second section of the financing addendum has a default option to allow the seller to require us to either waive the financing contingency or to dissolve the contract after day 21.  We may elect to reduce the number of these days but only if it is safe to do so and if it makes our offer more competitive or better for negotiations.

NWMLS 22AD

The next section of this form serves as an outline of steps if the home is appraised for less than the sale price which includes options for the: 

  1. home to be reappraised, 

  2. seller to reduce the sales price to the appraised amount, 

  3. seller to reduce the sales price to the appraised value plus an amount the buyer pays in additional funds, or

  4. seller rejects the notice of low appraisal.  

ASSESSED VALUE vs MARKET VALUE vs APPRAISED VALUE  

 
Market value example

ComparIson of Tax Assessed Value on the home which sold for $1,998,000 on 11/2/23

  • Assessed value
    is the taxable value the county has determined the home to be and is adjusted yearly and based on a large area’s increase or decrease in average sale prices, indiscriminately.  This value is often dramatically less than both the market and appraised value - in many cases hundreds of thousands lower. This value is important for your future property taxes and thus affects your monthly payments.

  • Market value
    is the price the market is willing to pay at the point in time and this can be a volatile number that goes up and down depending on what is available in that market and the current demand by buyers. In the Greater Seattle market, there is yet to be an automated home valuation tool that is remotely accurate as our neighborhoods, cities, and even surrounding counties are very diverse - For example in Capitol Hill, you may see a $300,000 studio co-op with a neighboring $3,000,000 house to one side and a $1,500,000 neighboring house to the other side. A real estate sales professional must manually figure out the market value, oftentimes calling other agents of pending, active, or closed sales to do so.

  • Appraised value
    is the value assigned to a home based on comparing 3 or more of the most recent sales of similar homes.  A licensed appraiser may use an assortment of methods to find the value of a home but the most common is to find 3 homes that have closed sales within the last couple of months.  It is not uncommon to have a home not appraise for a sales price if there are not enough recent comparable homes that have an average sales price equal or greater than the sales price of a contract.  

 

ADDITIONAL DOWN (22AD)

Form 22AD

In competitive situations, a buyer can offer the promise to pay the difference between the appraised value and the sale price.  This is done through the “Increased down payment for low appraisal addendum”.  On there we can state how much we are willing to promise to pay in cash as an “additional down payment” in case of a low appraisal.  If the appraised value plus the promised additional funds is greater than the sales price, we must remain in contract; If the appraised value plus the promised additional funds is less than the sales price still, then we can elect to negotiate, pay additional funds on top of the down/additional down to continue the transaction, or we can dissolve the transaction.