Question about buyer back out (real estate, loan, broker)

[ThreeMeninMyLife]

HI everyone
Question.

We gave 4,000 ernest money on a house that may not appraise at what we offered (had a real estate friend run some comps fro us and now Im worried). If so, there is a clause in our contract that states we can back out of the deal without penalty. OK I understand that.

I do have a question though-we are getting OUR house appraised tommorrow. We basically thought it was worth what our neighbors sold their houses for (3 of them on our street sold in Oct for 370). Well, ours is not brick. We thought we could get at least 340. We are in Davis Drive/ Green HOpe school districts and a desirable neighborhood. The houses go quickly in our neighborhood. We were going to try and put house up soon.

I was wanting to know: If our house doesnt appraise the way we "want" and we would end up not making as much equity as we anticipated, would we be able to back out of buying the other house? I know that we wouldnt have the full money necessary to put down the 20% we were going to put down. The sellers did have two back up offers. Would I call the broker and tell him we wouldnt be able to make our payment at closeing (if indeed our house only appraises for 320 or something?)

Thoughts? Im just curious. I will search and see if this has been asked before.

Thanks!

[MikeJaquish]

Originally Posted by ThreeMeninMyLife

HI everyone
Question.

We gave 4,000 ernest money on a house that may not appraise at what we offered (had a real estate friend run some comps fro us and now Im worried). If so, there is a clause in our contract that states we can back out of the deal without penalty. OK I understand that.

I do have a question though-we are getting OUR house appraised tommorrow. We basically thought it was worth what our neighbors sold their houses for (3 of them on our street sold in Oct for 370). Well, ours is not brick. We thought we could get at least 340. We are in Davis Drive/ Green HOpe school districts and a desirable neighborhood. The houses go quickly in our neighborhood. We were going to try and put house up soon.

I was wanting to know: If our house doesnt appraise the way we "want" and we would end up not making as much equity as we anticipated, would we be able to back out of buying the other house? I know that we wouldnt have the full money necessary to put down the 20% we were going to put down. The sellers did have two back up offers. Would I call the broker and tell him we wouldnt be able to make our payment at closeing (if indeed our house only appraises for 320 or something?)

Thoughts? Im just curious. I will search and see if this has been asked before.

Thanks!

Truly, this is a question for your Buyer's Agent, who can review your contract with you.
You can get a lot of conjecture on this forum, but the answers are in the contract. If it is vague, you may want to consult an attorney prior to doing anything rash.
But...talk to your agent ASAP, before taking any action.

Don't assume you won't appraise until you get your appraisal.
If the other homes are ALL sides brick, you may have a problem.
If they have brick fronts only, less of a problem.
Partial brick front? Very possibly no problem if other items are equal.

Good luck!

[PudelPie]

Originally Posted by MikeJaquish

Don't assume you won't appraise until you get your appraisal.

Mike, isn't it true that a lower appraisal just means that the lending institution won't finance as much? Isn't it very likely/possible that someone might buy anyway, or split the difference with the seller between ask/appraisal price? I do know that appraisals can be very subjective, particularly if you're dealing with an unusual house (which is not to say the aforementioned house is, but in general). Also, isn't it true that in 7 months' time the market can shift considerably, so that value may well have increased? (I'm basing a lot on the NE market, which I know is very, very different, but I think some of the basic assumptions might apply...)

[MaimounaKande]

It probably says in your contract that your contract is contingent on you getting financing. If you can't afford your down payment, and therefore can't get financing, you will be out of the contract and get your earnest money back.

That said...lenders RARELY say you're not qualified if there is any way on earth they can qualify you. So..although you may not want to have payments higher than planned if you put down a smaller downpayment, the bank may feel you can handle it. Or, the bank may say "if you liquidate your 401K you will have enough money." Of course you wouldn't want to do that, but that has nothing to do w/it. If the bank says you can afford it, they won't turn you down, and then you MUST go through with closing on the new house. The alternative would be to walk away from the earnest money you put down, but the seller would have the option of suing you if you are approved for a loan and do not follow through.

Basically, it's a contract you cannot easily get out of (which is good, or people changing their minds would be doing this all the time) unless you do not get financing.

[coltank]

It's best to consult your agent and an attorney

[MikeJaquish]

PP and MK,

I referred 3Men back to her fiduciary, her Buyer's Agent, because:
1. She needs the best, most relevant, and most accurate advice possible, not well-meant opinions based on conjecture. The terms of her deal are defined within the "Offer to Purchase and Contract," if that form was used. Many of the blanks to fill in are very negotiable items, and each deal has its own parameters.
2. She DOES have an agent. No other agent should be advising her, IMO.

Walk away from her contract and EMD? That is why I mentioned consulting her attorney.
With two house deals hanging, I think this is pretty significant to handle in this forum, in conjecture, when there is already a contract with its own variables that no participant has seen.

Originally Posted by PudelPie

Mike, isn't it true that a lower appraisal just means that the lending institution won't finance as much? Isn't it very likely/possible that someone might buy anyway, or split the difference with the seller between ask/appraisal price? I do know that appraisals can be very subjective, particularly if you're dealing with an unusual house (which is not to say the aforementioned house is, but in general). Also, isn't it true that in 7 months' time the market can shift considerably, so that value may well have increased? (I'm basing a lot on the NE market, which I know is very, very different, but I think some of the basic assumptions might apply...)

Originally Posted by MaimounaKande

It probably says in your contract that your contract is contingent on you getting financing. If you can't afford your down payment, and therefore can't get financing, you will be out of the contract and get your earnest money back.

That said...lenders RARELY say you're not qualified if there is any way on earth they can qualify you. So..although you may not want to have payments higher than planned if you put down a smaller downpayment, the bank may feel you can handle it. Or, the bank may say "if you liquidate your 401K you will have enough money." Of course you wouldn't want to do that, but that has nothing to do w/it. If the bank says you can afford it, they won't turn you down, and then you MUST go through with closing on the new house. The alternative would be to walk away from the earnest money you put down, but the seller would have the option of suing you if you are approved for a loan and do not follow through.

Basically, it's a contract you cannot easily get out of (which is good, or people changing their minds would be doing this all the time) unless you do not get financing.

[ThreeMeninMyLife]

Thanks a lot everyone! Sorry to ask for advice-I just wanted to see what people had to say. I did call my agent and waiting for her to call us back.

Our house will be appraised today at 6 pm so we will know Tuesday if it will appraise for what we think.

Thanks! And..all the best. This is a great forum and I appreciate all the advice.

[Bill Hitchcock]

MikeJaquish,
Excellent posts!
Bill

[MaimounaKande]

Well, I certainly wouldn't want her taking my advice in and of itself--I'm not a real estate agent, nor do I have anything to do with real estate. But I gave my opinion, as requested, based on personal experience with someone who tried to back out of a deal with us...whether it's relevant in her case, I have no idea which is why I cited her contract...I agree your advice is good and I'm not trying to supercede it...just giving my own opinion based on experience.

[pad3]

Selling a house is not smooth sailing...too many things to coordinate. I hope everything works out in your favor. Good luck and keep us posted.