The Listing That Outruns the Comps and the Cash
You represent buyers who are preapproved for a purchase price up to $475,000 with 10% down. They have $60,000 in cash, and you estimate closing costs and prepaids at 3% of the purchase price. A listing they like is priced at $489,000 after 90 days on the market. Your adjusted comparables, all closed within six months and within a half mile: Comp A sold for $465,000 with a +$8,000 adjustment for a missing garage; Comp B sold for $480,000 with a −$15,000 adjustment for a remodeled kitchen and larger lot; Comp C sold for $450,000 with a +$12,000 adjustment for inferior condition and location.
1. Reconcile the three comparables and judge whether the $489,000 list price is supported.
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Conclusion: Supported value is roughly $462,000–$473,000, with a point estimate in the high $460,000s. The list price is not supported.
Reasoning:
- Adjusted values: A = $465,000 + $8,000 = $473,000; B = $480,000 − $15,000 = $465,000; C = $450,000 + $12,000 = $462,000.
- The adjustments move the comparable toward the subject. A sold without a garage, so the subject is worth more: add. B was superior, so subtract. C was inferior, so add. Direction errors here are the most common source of a wrong conclusion.
- Range is $462,000 to $473,000; the clustering of two of three comps at $465,000–$473,000 supports a reconciled value near $466,000–$468,000.
- The list price of $489,000 sits roughly 3.5%–6% above the top of the adjusted range - beyond what a normal negotiation band explains.
- Ninety days on market is itself evidence: the market has already tested this price and not accepted it.
2. Given the buyers' cash and financing, what is the highest price they can actually pay? Which constraint binds?
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Conclusion: About $461,500 is the ceiling, and cash is the binding constraint.
Reasoning:
- Cash required at closing = 10% down payment + 3% costs = 13% of price.
- $60,000 ÷ 0.13 = $461,538, so the practical ceiling is roughly $461,500.
- Test the loan approval: at $461,538 the loan is $415,384 (90% LTV). Their approval allows a loan of $427,500 ($475,000 × 90%), so the loan is not the limit.
- Test the market: adjusted comps support $462,000–$473,000, so the buyers' purchasing power falls just below market value - the appraisal is not the limit either.
- Three constraints compete, and only one binds. Naming the binding constraint is the point: telling the buyers 'you're approved to $475,000' would send them into a contract they cannot close.
3. What do you advise the buyers to do, and what risk must the contract address?
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Conclusion: Offer near the cash ceiling with protections, or restructure the cash - and price in a probable low appraisal.
Reasoning:
- At $489,000 an appraisal is likely to land near $467,000. If the contract price exceeds the appraised value, the buyers must cover the gap in cash, which they cannot do. The appraisal objection/termination right is therefore the critical contract term, not boilerplate.
- A seller concession toward closing costs reduces the buyers' cash need: if the seller paid their 3%, their cash covers the 10% down payment alone, and the loan ceiling of $427,500 caps price at $475,000. Concessions are limited by the lender and cannot exceed actual costs, and a low appraisal still caps the loan.
- Reducing the down payment below 10% raises cash-in-hand but pushes LTV past the approved level and adds mortgage insurance - confirm with the lender before writing.
- Offer strategy: price near $461,000–$462,000 with an appraisal contingency, a loan contingency, and a seller-concession request; be prepared to walk, since the seller has already spent 90 days defending an unsupported price.
- Never advise the buyers to waive the appraisal contingency to 'win' - that converts an affordability problem into a lost earnest money deposit.