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Contributor
TheoM
Posts: 19
Registered: ‎01-30-2013

Contract dilemma - What is the price of the house?

[ Edited ]

Thanks for the advice everybody. This has been a hot topic. However, I wanted to remove some of the specific details as this situation is going into Arbitration soon. Please read below, and please continue to give advice. I will be acting as my own counsel and I need all the advice I can get. I will listen to everyone and still do what's best for me, so thank you in advance!

Situation:

Prospective buyers & sellers set an agreed-upon-purchase price above listing price. Prospective buyers added an unclear now (but not at that time) addendum to RPA adding a few thousand to the appraisal to bring it up to the agreed-upon-purchase price. All signed before appraisal. Then appraisal came in lower than listing price. The prospective buyers, through that vaguely worded addendum in the RPA, are now attempting to purchase the house for a few thousand over the appraisal price. They asked for Mediation. Done already. Impasse. Next is Arbitration.

TheoM

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HarryV
Posts: 820
Registered: ‎03-20-2008
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Re: Contract dilemma - What is the price of the house?

When the appraisal comes in low, it simply means that the bank will not lend more than that value. Any difference will have to be made up by the buyer. If the appraisal came in at $206,000, the bank will assume the home is valued at that amount. However, the contract signed is much higher at $235,000. The buyers will have to come up with an extra $29,000 downpayment to make up for the difference. So in the end, the sale price is still $235,000 but the buyer will have to cough up a larger down.

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MarivelC
Posts: 5
Registered: ‎10-27-2011

Re: Contract dilemma - What is the price of the house?

 

 

Discrepancies between offered price and appraised value are becoming an issue for lenders since so many buyers are going over the asking price to make their offers more appealing to the sellers. 

 

The appraised value of the property is what the lender will use for loan purposes. If you feel strongly about your price of $235,000 and you can back it up with recent (within 3 months)closed sales of similar homes.  I recommend asking for an appraisal review.

 

It could be that the appraiser was not familiar with the area and used the wrong data for comparison.  I've asked for appraisal reviews in several occasions and I was able to get approval for a higher value in most cases.

 

In your question, you stated that the buyer is willing to pay up to $3,500 in cash over the appraised value ($206,000), so the buyer is willing to pay $209,500.  It's a competitive market for buyers and your buyer may be willing to contribute more than $3,500.00 which means paying more than what the property is worth.  Since they're FHA buyers, I don't think that will be the case. 

 

It sounds like you have a buyer that's willing to make an effort and already invested time and money on appraisal. If you were shopping for a home, would you pay $235,000 for your house? 

 

I hope you'll find a happy medium for both of you.

 

Ask your agent to communicate with the buyer's lender to assist you with the appraisal review.

 

Best wishes

 

 

PS.  Is this a standard sale or short sale?

Gold Regular Contributor
lexa
Posts: 1,961
Registered: ‎05-13-2009
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Re: Contract dilemma - What is the price of the house?

i don't see much dilemma here, contract + addendum are quite self-explaining and simple.

 

according to contract the price is $235K.

 

However, since appraisal came lower than $231.5K, buyer can,  within appraisal contingency (if any),  cancel the contract with full deposit refund.

Contributor
TheoM
Posts: 19
Registered: ‎01-30-2013
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Re: Contract dilemma - What is the price of the house?

[ Edited ]

Thanks for the advice everybody.

Gold Regular Contributor
lexa
Posts: 1,961
Registered: ‎05-13-2009
0

Re: Contract dilemma - What is the price of the house?

[ Edited ]

TheoM wrote:
 Any advice how to make this stop? [I will never sign an addendum again.]

has little to do with addendum but everything with buyer being stupid.

i suggest:

1. give NTP 2 days before a holding (i guess, loan or appraisal) contingency expiration. if the contingency is not lifted in time, cancel the sale in written with release of deposit.

2. put property back on a market right now, but don't accept any offers before you deliver contract cancellation.

3. the buyer can force arbitration if that check-box was checked on RPA and even perhaps put a hold on your ability to sell before legal proceedings are done, if any. However, losing side would have to reimburse winning one for all legal expenses + $1000 for acting in bad faith (which buyer does) + I'd ask for expenses related to hold on house sell. I don't see how this addendrum gives buyer any right to purchase house for less than agreed in RPA, if anything it forces buyer to bring his downpayment up should appraisal come short up to 3.5K. So, I don't see how buyer can prevail or even claim good faith dispute.

 

let us know which way you chose to go (give in to unreasonable buyer or send him packing and take his money if he insists on arbitration)....and the outcome.

 

 if you initialed mediation and arbitration clauses on RPA, buyer may require you to do it (regrdless if you see a reason, otherwise why signature is needed in 1st place, right).

Silver Contributor
DrivingSideways
Posts: 547
Registered: ‎03-03-2009
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Re: Contract dilemma - What is the price of the house?

Theo, are you trying to keep a part of the deposit, or planning on returning it in full?  I'm not a real estate attorney but your addendum seems clear.  You are not required to sell your house for what they deem appropriate, especially in this market.  Good luck.

Regular Contributor
abenjami
Posts: 98
Registered: ‎11-09-2009

Re: Contract dilemma - What is the price of the house?

[ Edited ]

$209,500

 

 "If property appraisal comes in lower than agreed purchase price of $235K, then buyer will pay the difference between the appraised value and agreed purchase price up to a maximum of $3,500."

 

The term "will" is a mandatory term in contract interpretation.  It's not an option.  By signing that addundum (which becomes part of the contract), you agreed that is what the buyer will pay if the appraisal comes in low.

 

The agents really screwed both the buyer and the seller here by not making the contract clear.

 

Clearer language would have been something like "the sale price will be the lower of $235k or the appraisal plus $3,500" or "the buyer agrees to pay up to $3,500 as an appraisal guarantee if the appraisal is lower than $235k but the sale price shall not change."

 

Something you as the seller should consider.  Even if you get the buyer to walk away, you will have to disclose that low appraisal from here on out to any potential new buyer.

Trusted Contributor
Seneca
Posts: 186
Registered: ‎02-13-2012

Re: Contract dilemma - What is the price of the house?


abenjami wrote:

$209,500

 

 "If property appraisal comes in lower than agreed purchase price of $235K, then buyer will pay the difference between the appraised value and agreed purchase price up to a maximum of $3,500."

 

The term "will" is a mandatory term in contract interpretation.  It's not an option.  By signing that addundum (which becomes part of the contract), you agreed that is what the buyer will pay if the appraisal comes in low.

 

The agents really screwed both the buyer and the seller here by not making the contract clear.

 

Clearer language would have been something like "the sale price will be the lower of $235k or the appraisal plus $3,500" or "the buyer agrees to pay up to $3,500 as an appraisal guarantee if the appraisal is lower than $235k but the sale price shall not change."

 

Something you as the seller should consider.  Even if you get the buyer to walk away, you will have to disclose that low appraisal from here on out to any potential new buyer.


I don't see it that way.  IANAL, but the key phrase here seems to be "agreed purchase price," and the addendum makes it clear the "agreed purchase price" is $235,000.  Full stop.  I don't see how any court could conclude that the seller accidentally bound himself to accept a purchase price of the appraisal plus a maximum of $3,500.

 

And if the seller did not intend to do that, and there is sufficient ambiguity in the language that an ordinarily careful and intelligent person could have signed it without having that intention at all, I don't see a reasonable court enforcing the contract.  I think the most likely outcome is that the judge will conclude the buyer fully intended to pay the difference between the appraised value and $235k, but put in the $3,500 limit as a way to back out of the contract if the appraisal came in far lower than he expected.  Which is, in fact, what happened.  So that the buyer's anticipated and in fact only real remedy at this point is to cancel the contract.  This business  of trying to pretend in fact the RPA cleverly tricked the seller into agreeing to a purchase price equal to the (at that time unknown) value of the appraisal plus $3,500, or $235k, whichever was lower will, I would guess, be seen as a highly amusing Hail Mary pass.

 

I also don't see at all why the seller need disclose squat about the low appraisal to the next buyer.   It's not the seller's problem in general to advise the buyer of the collateral value of the house -- that's the buyer's problem, because the buyer is the one taking out a mortgage.  The appraisal isn't even the seller's information to share -- it's information that properly belongs to the buyer, because the buyer asked for it and paid for it.  For all the seller knows, the appraiser the buyer chose is a moron and the appraisal complete junk.   Why would he have to disclose it?  Might as well say he is obliged to disclose the fact that his neighbor thinks his asking price is way too high, because of the generally unpleasant character of the neighbors.

Contributor
TheoM
Posts: 19
Registered: ‎01-30-2013
0

Re: Contract dilemma - What is the price of the house?

[ Edited ]