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I remember when our "new" Due Diligence method began - we'd offer $100 just to not insult people. If it was over $500K, maybe - MAYBE $500. It was a Buyer's market. Now, I'd say our Buyers shouldn't be surprised at DD of 1% of the contract price.
I certainly wish we had some refinements where Sellers more frequently had the homes inspected before putting on the market. And nothing prohibits the Buyer from having a clause that says the Purchase Price will = Appraisal should it come in short.
Getting a Seller in this market to agree to either doesn't happen often.
Aren’t appraisals rather subjective? Last year we sold a house in a multiple offer situation. The neighborhood was clearly hot and priced well below similar neighborhoods nearby. However, the appraisal came in for $30,000 less than the sales price. We were all hollering that was wrong but the deal fell through.
Another buyer offered even more and a different appraiser said that was fine. So Buyer B got the house, and prices are now well above what B paid. It seems to me that Buyer A got shafted by the appraisal process.
Yes they are subjective, and I'm another that has seen a good deal fall apart because of an appraiser who undervalued the house. I tried to fight it and got nowhere.... at it's root, it's an opinion.
Aren’t appraisals rather subjective? Last year we sold a house in a multiple offer situation. The neighborhood was clearly hot and priced well below similar neighborhoods nearby. However, the appraisal came in for $30,000 less than the sales price. We were all hollering that was wrong but the deal fell through.
Another buyer offered even more and a different appraiser said that was fine. So Buyer B got the house, and prices are now well above what B paid. It seems to me that Buyer A got shafted by the appraisal process.
yes they are, which is why it matters who the Buyer chooses as their lender, and how that lender goes about choosing an appraiser.
Still, at the end, nothing prohibited Buyer A - who agreed to pay $30K and who seems also "hollered" about that deficient appraisal - from paying $30K more or so in cash. Or restructuring their loan.
Imagine if the contract price was $300K, and he was paying $300K with 20% down. He figured to have a $60K downpayment and borrow $240K. So long as he was QUALIFIED for the payment and a slight variation in standards, he could have paid 5% down, or 13.5K + the 30K extra. His downpayment is actually smaller. He may not even pay a higher rate (it's a conventional 30 year either way). He would pay some mortgage insurance, but might easily refinance in 1 year.
This only works if all parties have access to the owner's engagement of the appraisal. Although it should be in the report, it is easy to bury. The assignment may not be to determine current maket value, but highest possible value and with extraordinary assumptions.
I would never let a seller's appraisal on anything determine what I pay.
yes, that's my concern too. The bank won't care about the owner's appraisal but since they are the ones providing the financing, this could end up being a problem. I hope they still having a financing contingency in the agreement in case the numbers don't match up and the owner appraisal is significantly higher than the bank appraisal, which could contractually obligate them to buy for more than they can get financing for.
Even thought CO is typically not an attorney state when it comes to real estate closings, this might be an exception where it's worth having an attorney take a look at this contract.
I am an attorney. So she can have an attorney look at it for free. Not in Colorado, and not in residential real estate but I know contracts better than most attorneys.
I have never heard of this kid of deal, that s why I asked. I have had no involvement in residential real estate in decades. Maybe this is something new.
However my daughter is both fiercely independent and extremely stubborn. I did not even know they were looking at a house until she told me they had made an offer. Maybe this is something new.
The problem with the attorney review, while it is a good idea, is they had to provide a $3000 good faith deposit for the deal. Add another $3000 for an attorney to review the contract and answer some questions and they might not e able to afford the house a anymore. They are buying close to their maximum- (There is no need for judgmental comments here, thank you. Young people starting out make their decisions and they either work out or not. We nearly had to sell our shoes to gt into our first house, We absolutely could not afford it. We struggled for a long time, but we made out like bandits when we sold it (paid 175,000 sold it after 9 years for $757,000).
I think the OP is wording it weirdly, but it appears to be an appraisal gap clause. They are essentially pre-negotiating the appraisal contingency. Most contracts have appraisal contingencies which still stands, but the buyer is agreeing to an appraisal gap coverage of $3,000, not to exceed a certain appraisal amount as they obviously wouldn't qualify for financing after a certain point.
In my experience, a normal appraisal contingency is simply if it does not appraise at the offer price, the deal can be terminated. This deal is the price is whatever it appraises at, plus $3,000; subject to a cap. So, if the house appraises substantially below the offer cap, the deal does not fail, the sale price just goes down.
This may be acceptable to the owner because they just had a deal and probably an appraisal, but the buyer backed out. They probably have a very good idea where it will appraise. However my daughter believes this is a normal type of offer in their market. I thought it was pretty strange.
It is a good point the bank may want their own appraisal. Maybe the bank has already agreed to the deal and/or approved the appraiser.
I certainly wish we had some refinements where Sellers more frequently had the homes inspected before putting on the market.
I wanted to do this quite a while ago when we sold our house in California. Our realtor said we were crazy. First if the inspector found anything we did not know about and decided not to fix, we would then have to disclose it. Second you need to get the buyer excited about the house before they learn of any deficiencies. IF they are excited about it, they will accept a lot more than if they learn of issues up front. Third, our inspector might find things their inspector will not find. We are just increasing the number of things we will have to fix.
I did not like this advice, so I did my own inspection putting myself in the place of a buyer and fixed the things I found troubling. We ended up hating the buyer, so it was a waste of my time actually, but I still think it is the right thing to do.
I sure hope the agent who wrote the offer did a better job of putting into words than you did. The way you wrote it, if it appraises for $190,000 they are locked in to pay $193,000.
I wouldn't accept it, but you never know, someone might get talked into it.
I am sure the terms are more complicated than what was relayed to me. My daughter is an elementary school music teacher, not a lawyer or a realtor. She is smart (probably smarter than everyone of us), but not sophisticated when it comes to contracts and real estate. The way I wrote it is the way it was explained to me. i had not heard of anything like this before, but she seemed to think her realtor believed it to be a standard practice. That is why I asked. Standard practices vary in different areas and different markets.
However you need to work on reading skills a bit. The way I wrote it I clearly said if it appraises for $190,000 then the purchase price is either $100,000 or $103,000. In fact I used that exact example. I think you somehow forgot to read this sentence: "If it appraises for $190,000 they buy it for $100,000 (or $103,000 - that is not clear to me)." I do not see any way this could be misread to say "if it appraises for $190,000 they buy it for $193,000" Sometimes we are all guilty of seeing what we expect or want to see or hear instead of what someone writes or says.
I am an attorney. So she can have an attorney look at it for free. Not in Colorado, and not in residential real estate but I know contracts better than most attorneys.
I have never heard of this kid of deal, that s why I asked. I have had no involvement in residential real estate in decades. Maybe this is something new.
However my daughter is both fiercely independent and extremely stubborn. I did not even know they were looking at a house until she told me they had made an offer. Maybe this is something new.
The problem with the attorney review, while it is a good idea, is they had to provide a $3000 good faith deposit for the deal. Add another $3000 for an attorney to review the contract and answer some questions and they might not e able to afford the house a anymore. They are buying close to their maximum- (There is no need for judgmental comments here, thank you. Young people starting out make their decisions and they either work out or not. We nearly had to sell our shoes to gt into our first house, We absolutely could not afford it. We struggled for a long time, but we made out like bandits when we sold it (paid 175,000 sold it after 9 years for $757,000).
I'm an attorney. In Colorado. Who exclusively handles contracts.
And if I were in this deal, *I'd* hire a different attorney, one who specializes in real estate contracts in Colorado. These are not standard contractual terms, and they aren't standard real estate transaction conditions.
And I highly doubt it would cost $3000, probably less than $1000. I personally consider that money well spent on what will of course be the biggest financial transaction of their lives up until this point. Perhaps Dad can fund that if they are willing to agree to do it, you know, to humor him?
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