Hello all. My first real post.

I live in southern MN and own my home free and clear. I plan on retiring to Northern MN in about 6 years and have started looking at places. Well, I found one and it is just what we had in mind and then some. We would use it as a cabin / seasonal residence for the next few years and gradually move there.

Here's my question. It is a country home and the sellers want to move to town. They built the place new in 2003 and now they've had a couple kids and need more space and want to be near the school instead of 5 miles out in the woods. They have it listed for 150% above the tax assessed value. I'm thinking of making an offer on this house before year end and don't know where to start. I've talked with realtors in the area to represent us but they're reluctant, I think they want to protect the home values in there home town and aren't real eager to negotiate things downward too much from asking price.

Anyway, It would be a non-contingent offer (I don't need to sell anything and we love the place as is). I'm pre-approved for a mortgage. And here's the kicker, I'd let them live there rent free for as long as it takes them to find the home they want to buy. So, they could pay off their mortgage, sit on their equity and make a non-contingent offer on their next home, all while living in their present home rent free for a year or two if they'd like.

They're asking $250,000.

I doubt the REALTORS are reluctant to represent you because they want to protect the home values. I would think they want to make offers that are based upon recent sold comparables.

The home may be overpriced, it may be underpriced, it might be priced perfectly. The tax assessed value does not always accurately reflect the fair market value.

Only an experienced REALTOR in the area that this home is in could say what would be a reasonable offer. Many REALTORS do not like making offers that are unrealistically low.

Good luck and best wishes with your home search!

Thank you, when I read my post I did a poor job asking my real question.

- I meant to ask, how valuable is a non-contingent offer with mortgage pre-approval ? All things equal, I'm thinking this would be worth some discount in the offer.

The offer to let the sellers continue to live in the house is just to make our offer more attractive to them, since it wouldn't cost us anything and would benefit both parties I'd look at it as a win-win between us and the sellers.

When I was visiting with our mortgage banker they were concerned that it may not appraise out if we offered 150% of the assessed value when other homes in the area are selling for about 110%. the real estate market in this area has been extremely slow the last two years and there aren't many comparable sales. Homes like this have not been selling according to realtors, residents and bankers I've talked to in this area.

As for a REALTOR, the one we really like to work with in this area happens to be the one listing the house, she'd be in dual capacity and I know that no matter what, she's representing the seller. I really like her and want to continue to work with her on this house, or any other one in the area. I don't want to get another involved to act as our broker when it comes to houses that she's listing and don't know another way to handle it.

I have contacted an independent appraiser who is going to do a market survey and give us an opinion for a fee. It won't be a full fledged appraisal but it would be an opinion from a professional with a finger on the pulse of the area's real estate market.

Norske, you can ask the agent to refer you to someone she trusts. In doing that, you will allow her to make some money on the buyer side of the transaction; but you will get some distance from the seller's agent. You are wrong about one thing, though. If she is a dual agent, she does NOT represent the seller "no matter what." She represents both of you and not one above the other.

Your questions prove that you DO need an agent, and you need one fast. You have some serious issues going on. First, you don't actually need an appraisal before you make an offer. You can have an appraisal contingency in your contract. Of course, you can opt to get an appraisal first, but you cannot use that appraisal with your lender. You will pay for a second one.

Second, a non-contingent offer is good but that does not really translate into dollars for the seller. It just makes for a more certain contract.

What you are offering is not really non-contingent unless you are prepared AND able to purchase the property WITHOUT a loan. What you are offering is a contract from a well-qualified buyer who is pre-approved. While it is not contingent upon getting loan pre-approval, it is still contingent upon a loan. Your lender is going to require some steps to be completed, and if those steps fall short, you do not have a loan. One of those steps will be an appraisal.

Your offer to allow the seller to occupy the home after closing does translate into actual dollars for the seller, however, possession after closing is a complicated legal issue. You MUST consult an experienced agent and/or a lawyer to guide you through the process!

Now in regard to determining the actual value of the subject house, here's what I think may be happening. You have asked the listing agent to admit that the property she is legally bound to represent is over-priced. That has created a conflict. Get a different agent to give you a competitive market analysis (CMA).

Keep in mind that no matter what the outcome of the CMA is, the owners may not be able to sell the house at that price or at the price you want to offer. If they are upsidedown in value, they may have to keep the house. Good luck!

Thank you for the great advise lizl.

I was thinking of making a cash offer at this time and refinancing after the closing but my financial planner talked me out of doing it that way. That would have been a true cash offer, but now we will be working with a mortgage company.

I really like the listing agent and want to have her represent us as buyers in this deal or any other deal if this one doesn't work. I don't want to have to eliminate her as our agent on any property where she's the listing agent with the seller, it's a small town and she lists many of the properties we're interested in.

I don't think this would be the first time she's acted in dual capacity where the buyer offers a lower price than the seller is asking.

Thanks again for your help.

You are welcome. Please check back in and let us know how this all turns out.

I do not see Realtor's problem, if this people already listed it 150% under the asset value. How much less would you like to offer?

I've seen plenty of houses sell for under assessed value these last couple years. I've talked with several people in the real estate business over the years and they're always talking about the sale price to assessed value ratio. I'm not saying assessed value is an accurate number, it's not. But actual sales prices are compared to assessed value all the time. I spoke with the county assessor where this property is located and he said they try to assess houses about 10% under the current market price. He also said that most sales they've seen have been right around assessed value this last year.

So, I do believe that assessed value does have some impact on the sale price of a house, especially in this market when there are so few comparable sales, and no comparable sales near 150% over assessed value.

One of the first questions my banker asked was what is the assessed value ? Then she said most homes are selling for right around assessed value.

I'm not saying the Realtor is wrong to list the house for what they think they might get for it. It's their job to try, but it's not the buyer's responsibility to comply.

I think the CLA (Common Level of Assessment) has become a common calculation country wide. It is the continuously calculated or dynamic relationship between what a Community's properties are assessed at and the prices that they achieve in the marketplace (for those that actually sell.

Our Communities strive to maintain a CLA of 100% in their overall assessments . . . . but none can be right on the money (maybe by accident, like a blind squirrel finding a nut). They are always following the market. As their CLAs deviate too much from 100% (say down to 75% or over 120%, the State (in my case, Vermont) triggers a mandatory re-appraisal of everything in the Community.

Whole Town Re-Appraisals (actually re-assessemnts) are usually done about every 10 years . . . . but some Towns get "Out of Whack" more frequently and have to be taken to the woodshed every 3 or 4 years until they learn how to get it right. Whole Town Re-Appraisals cost quite a bit of money and are to be avoided when possible.

Just to clarify a couple of points--Sales prices of real estate should have impact on the overall assessed value, instead of assessed value driving the sales prices. Because of that, the assessed value should always be a bit off of the actual sales prices. Normally, the selling price trend sets, or forces a reset, of local assessments, as Vermont explained. If houses in your area are selling AT the assessed value, your local prices may still be falling.


Most likely, the REALTOR knows the house is overpriced and probably has already conveyed that fact to the seller (unless, of course, the agent is a newbie and simply does not know how to tell a seller the hard, cold facts). It is the seller who actually determines list price, and that price is often driven by what the seller has in the property or believes they need out of the property.

Sellers are, very often, unrealistic in their expectations. They get upsidedown in houses by pulling out equity via refinance during boom times and then prices fall (or the property was grotesquely over-valued during the refinancing process). All too often, the equity is used to pay off other credit or to make new purchases that do not increase the value of the house. Or, they could have paid too much for the house to begin with and then have been hit with falling prices. Some lenders were making interest only loans a few years ago and even financing 105% of the purchase price. Of course, all of those buyers are now upsidedown, sometimes by shocking amounts.

Another motivation for seller overvalue is their need to have a downpayment for another house. Of course it is delusional, but many sellers with virtually no equity hope they can realize enough profit from the sale of their present house to also provide a downpayment on another residence.

While the offer with no contingencies is the best offer for the seller it is not the best thing for the buyer.

Your offer should be contingent on the loan, just in case it does not appraise the loan contingency will keep you from paying more than it appraises for, and contingent on a home inspection, even new houses can have problems.

Have the listing agent write up the offer the way you want it written up and for the price you think it is worth. While the listing agents fiduciary responsibility is to her seller, her main objective is to get the house sold for her seller.

Don't let them live there for free. It is only fair for them to pay you market rent and they will stay longer then needed for free.

Also, don't let them stay there until they find something else to buy. What if they lose their job and can't get a loan for 5-10 years.

If you don't prepare for the worst case scenarios, you might find yourself back on this forum looking for different advice.

That's great advice Bigtoe, we'll be careful on how this is stated in our offer. I've got to back up a step when I say that our offer will be non-contingent, what I really meant to say is that the offer is not contingent on us selling our current home.

This would be a second (seasonal) residence for us for the next 5 years then our retirement home after that. We're in no hurry to take possession since we're 350 miles away and we wouldn't be using it much until we begin moving in about 4 years.

The current owners are looking for something bigger now that they have two children (it's a one bath, two bedroom house). They're having a hard time buying the house they want til they get theirs sold. If they accept our offer it would put them in the position to make a similar offer and get the house they want sooner. They built this house and it is immaculate inside & out. I'd actually prefer that they live there as long as they want until we're ready to move there ourselves in a few years. We will not rent it out to anyone else. There would be value to us to let them live there, even if it were rent free, they'd only have to pay utilities. We'd likely put a limit on the free part at 6 months, then an option to rent on a monthly basis for about 1/2 the market rate. These are details the agent said she can help us out with since she's representing both of us. The sellers have expressed interest in this idea.

I don't want to beat anyone out of anything. I appreciate the advise on the loan contingent on the home inspection and appraisal, at first I was considering a cash offer but I can see value to the buyer in having a lender qualify the purchase. We'll be making an offer once the pre-approval letter arrives.

Thanks all for the help.

Norske,

I am glad you are working with an agent and not trying to go it alone. Please, please don't get so caught up in the sales price that you under-estimate the importance of the Possession After Closing document. The timeframe and rental amounts are not the only issues.

Also, be sure to talk to your insurance agent and tax accountant. You are actually going to need to insure the property as investment property, because of the fact that you will have "tenants" in it. Be sure you understand the costs involved in that and also insist that your "tenents" understand how their insurance coverage and tax status will change and what their costs will be.

Be aware of the potential that the house that is now immaculate while they own it may become less so when they no longer own it. And their growing family may put additional stresses on the property that are not now present. Of course, you need to specify IN WRITING who is responsible for maintaining the house.

Rather than leasing to them for 4 or 5 years right off, I'd suggest a yearly renewable lease that has an out for you, just in case your circumstance should change. Worst case scenario: You or your spouse becomes disabled or even dies. Would the other spouse need to "cash in" that second residence?

What if you decide to retire early or you have a need to move a family member into the house a year from now and the former owners are not ready to move? You may end up evicting them after letting them live there nearly rent-free. Your contract should state that all costs associated with a successful eviction must be paid by the tenants.