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Old 01-22-2011, 11:21 PM
 
13 posts, read 48,282 times
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We are currently under contract on a house and are in the attorney review period, which has been extended until we come to an agreement on home inspection items. The price has already been agreed upon (including the sellers to pay $6 towards closing costs) and the house is listed as "under contract."

Within this contract negotiation period via the lawyers, there is one issue that is concerning and wanted feedback.

Our lawyer put the standard clause in:
"The contract shall be contingent upon a lender appraisal not less than the purchase price."

Sounds pretty standard, right? That's what we thought, but the sellers' lawyer came back with this response to that point:
"Agreed, but if appraisal is less than purchase price and within the net sale price taking the closing cost credit into account, the contract shall remain in full force and effect."

We've discussed back and forth with our lawyer and realtor and if we're understanding this correctly, they want us to commit (before an appraisal is even done) that if the appraisal comes back lower than the purchase price (which includes our closing cost credit) BUT within the range b/w house price (price less the closing cost credit) and purchase price (house price + closing cost credit), we are stuck in the contract for the purchase price still. Which means we need to come up with the closing costs, yet the sellers still get the house price they wanted.

Does this seem fair? And why are they bringing this up now, before the appraisal is even done, since this may not even be an issue if it appraises out.

Here's the point that makes me uncomfortable - the sellers are the agents on this place. And one of them owns a Real Estate Appraisal business. So are they worried that it won't appraise out and are trying to get us to basically be stuck in the deal even if that happens?

Thanks for any insight.

(Btw, we went back and told them we won't agree to that clause and that we need the place to appraise out to the agreed purchase price!)

Last edited by theboymom; 01-22-2011 at 11:26 PM.. Reason: spelling errors/clarification
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Old 01-23-2011, 01:17 AM
 
Location: Laguna Niguel, CA
768 posts, read 3,957,788 times
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To me it says if it doesn't appraise at least for the purchase price then neither party is obligated to move forward until a new purchase price has been agreed upon.
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Old 01-23-2011, 08:45 AM
 
Location: Lakewood Ranch, FL
5,112 posts, read 7,639,834 times
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Your purchase price is really your purchase price less your credit for closing costs. I mean, if you give me $10 and I give you back $2, you've really only given me $8, right? They are only saying that the appraisal contingency is OK with them but they are saying that the threshold for passing the contingency is the amount you are really paying them. Seems pretty reasonable to me. If you don't like it and it is that important to you, reject the change. That is what a negotiation is all about.
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Old 01-23-2011, 08:47 AM
 
13 posts, read 48,282 times
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That can't be what it's saying though. The purchase price is the house price PLUS the closing costs they're giving us, which is $6k.

If it were saying that either of us could walk away, it would say what our lawyer said: If the house doesn't appraise for the agreed upon purchase price, then we can all walk away.

But the sellers took it a step further and said that even if it DOESN'T appraise for the agreed upon purchase price, we are still stuck in the contract and are obligated to still pay the purchase price.

Example (not actual numbers):

-Purchase price: $300k
-House price/what sellers are getting: $294k
-Sellers are providing us $6k in closing, which is the diff b/w house price & purchase price

What their lawyer put into the clause was this:
If the appraisal is lower than the agreed upon purchase price BUT is within the range of the house price-purchase price (essentially, if it's b/w $294-300k), we are stuck in the deal and are expected to still pay the $300k. Basically, we won't get closing costs, but the sellers will definitely get their bottom line of what they want for the house if it appraises within that range, but below purchase price.

To me that doesn't seem fair. If the appraisal is AT ALL below the agreed purchase price (i.e. $300k), then everyone should be able to walk away OR re-negotiate. They are trying to say that we can't walk away if it appraises slightly lower - and can only walk away if it appraises for LESS than $294k.

Does that make more sense or clarify? This is how it was explained to us by our lawyer and theirs, and was just wondering if this is standard for sellers to do or if anyone has had a seller try this tactic before the appraisal had been completed. Thanks!
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Old 01-23-2011, 08:49 AM
 
13 posts, read 48,282 times
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Quote:
Originally Posted by bbronston View Post
Your purchase price is really your purchase price less your credit for closing costs. I mean, if you give me $10 and I give you back $2, you've really only given me $8, right? They are only saying that the appraisal contingency is OK with them but they are saying that the threshold for passing the contingency is the amount you are really paying them. Seems pretty reasonable to me. If you don't like it and it is that important to you, reject the change. That is what a negotiation is all about.
Ok, then that isn't how it was explained to us. Our lawyer even called their lawyer for clarification as the wording seemed a bit confusing to everyone.

Aren't they saying that if it appraises for only the house price amount (and not the purchase price, which includes the closing costs), that we have to come up with potentially $6k on our own to cover closing costs?

That's how it was explained to us and why we said no.
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Old 01-23-2011, 08:57 AM
 
Location: Cary, NC
31,589 posts, read 55,295,005 times
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It is absolutely definitely "fair." It is being done clearly, prior to finalization of contract, giving you the opportunity to accept or reject.
What could be more "fair?"

That certainly does NOT mean it is advisable, or inadvisable.
Talk to your attorney and agent about the ramifications.
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Old 01-23-2011, 09:01 AM
 
Location: Lakewood Ranch, FL
5,112 posts, read 7,639,834 times
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If your second message is the right scenario then I would agree with you. This seems to be a case of inartful language by their attorney. You want to buy the property, they want to sell it. If the wording needs explanation, it isn't acceptable. Ask your attorney to reword it the way you can live with and shoot it back to them. Don't be afraid to have it the way that makes you feel comfortable.
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Old 01-23-2011, 09:16 AM
 
13 posts, read 48,282 times
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Quote:
Originally Posted by bbronston View Post
If your second message is the right scenario then I would agree with you. This seems to be a case of inartful language by their attorney. You want to buy the property, they want to sell it. If the wording needs explanation, it isn't acceptable. Ask your attorney to reword it the way you can live with and shoot it back to them. Don't be afraid to have it the way that makes you feel comfortable.
Ok, thanks. Our lawyers said the same thing - that this clause worded the way it was became very confusing and wasn't clear. To the point that our lawyer's office called their lawyer to ask what they mean. They clearly weren't okay with the usual statement of it needing to appraise at the purchase price or more for the contract to still be valid.

We ended up saying that we were firm on needing it to appraise for the purchase price. That was Friday at around 4pm, so since it is with the lawyers, we won't hear back until Monday morning at the earliest.

Last edited by theboymom; 01-23-2011 at 09:46 AM..
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Old 01-23-2011, 09:35 AM
 
Location: Laguna Niguel, CA
768 posts, read 3,957,788 times
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Quote:
Originally Posted by theboymom View Post
Ok, then that isn't how it was explained to us. Our lawyer even called their lawyer for clarification as the wording seemed a bit confusing to everyone.

Aren't they saying that if it appraises for only the house price amount (and not the purchase price, which includes the closing costs), that we have to come up with potentially $6k on our own to cover closing costs?

That's how it was explained to us and why we said no.
Doesn't say that in the least. If it does, then all of that above you just wrote needs to be put in the contract.

Not sure why this is so difficult to understand, and for attorney's of all people.

"The contract shall be contingent upon a lender appraisal not less than the purchase price."

Let's break it down.

"The contract" = the agreement to buy the home between you and the seller

"shall be contingent" = meaning the contract is only valid if

"upon a lender appraisal" = the appraisal that the lender orders

"not less than the purchase price" = the amount that is listed on the HUD-1 settlement statement as the contract sales price
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Old 01-23-2011, 09:42 AM
 
13 posts, read 48,282 times
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Quote:
Originally Posted by ShanetheMortgageMan View Post
Doesn't say that in the least. If it does, then all of that above you just wrote needs to be put in the contract.

Not sure why this is so difficult to understand, and for attorney's of all people.

"The contract shall be contingent upon a lender appraisal not less than the purchase price."

Let's break it down.

"The contract" = the agreement to buy the home between you and the seller

"shall be contingent" = meaning the contract is only valid if

"upon a lender appraisal" = the appraisal that the lender orders

"not less than the purchase price" = the amount that is listed on the HUD-1 settlement statement as the contract sales price
Thanks, but I sense some condescending nature to your response, which is not needed. To me, it seems that you didn't read the whole original post and just focused in on the first couple of paragraphs. Because if you did, you would see that I am not arguing the statement you just picked apart like I am a 1st grader.

The statement you just picked apart....
"The contract shall be contingent upon a lender appraisal not less than the purchase price."

That is the statement OUR lawyer put into the contract. That one is fine by us. BUT, their lawyer came back with another statement, which is what I am asking feedback on.
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