When NOT to use a notice to perform? (appraiser, clause, investment)

[Spottednikes]

Originally Posted by TheLonelyGoatherd

Thank you for this info! I can only tell you from the seller's side, speaking for my friend because I would be thinking like her. She told her agent the moment they got the call their loan fell through, she started a new loan the same day and to her knowledge, the seller was fine with that. He had re-listed the house right away and was taking backup offers. So if this 2nd loan fell through, he at least had backup offers. They got no offers. So I can see as a buyer, you'd be just focusing on getting all of your information to your broker. She and I both have self employed households so we were commiserating at how much more personal information mortgage companies need from you. And she said the house they were buying was actually half the amount they got approved for, they had a 40% down payment, asking no money back in repairs, offering to pay the seller's rental for the extra two weeks it took. All good signs of being a good buyer. So that's what she said. Her agent said she was just as surprised as her that the seller's agent was causing a stink all of a sudden.
But I really think that there was a lot that the buyer was kept in the dark about. It still comes down to, while it sucks that your buyer had to get a new loan, if a seller has no offers prior and no offers after, what do they have to lose if their buyer takes a little longer getting a new loan? I never realized that could be a problem for sellers. It's a good thing to know as a buyer if God forbid my loan falls through, we'll walk and not even try to buy the same house. I would never think it would be a problem as long as the seller was taking backups.

And it really drives home what bad advice it is on an agent's part to tell a buyer to waive their appraisal knowing their loan requires one. I mean, give a warning of what this means.

I would take waiving the appraisal to mean that I won't walk away if my loan appraises low. But I can't control what my mortgage company does. I can be okay with the appraisal but my mortgage company says it's too low. Otherwise why even have a separate contingency for appraisal and loan? If waiving your own appraisal is essentially the same as waiving your loan contingency? And around here, people are told to put 3% down on homes which are 800k and up. So that's a big fat deposit you stand to lose if the house doesn't appraise and your loan falls through. Damn.
Paying cash saves a lot of headache but really, most of us pee-ons need a loan

On fha, va and conv loans you can waive appraisal, meaning you will make up the difference in cash between appraised value and sale price, plus pay required down pmt (3.5% on fha, roughly 5%) on conv, plus pay closing costs) . All lenders are ok with that. What they are not ok with is financing a home that appraised low and buyer is not paying difference in cash.
So you cannot really say, a lender will not finance a home if it appraises low. They will, but buyer needs to make up the difference.
That is different than waiving an appraisal on a conv loan w/20% dn where you actually get a Freddie Mac/Fannie Mae waiver of appraisal, and an appraisal is not done at all.

[TheLonelyGoatherd]

I read that jumbo loans require an appraisal. That it's a national law. And jumbo loans in our area are anything over $800k, something like that. Which single family homes here start at 700k. So 3/4 of loans are jumbo.

https://jumbomortgagesource.com/cali...aisal-process/

Is that part not true anymore? I also read that if you borrow more than 1.5M, the house requires two appraisals.


I do know that some loans will allow you to bring cash to the table. But some loans do not allow that and hers didn't. Our broker said we had a little wiggle room but not too much. I never got an exact number but she said with the 1.7M sales price, if it appraised at 1.4M, we couldn't bring the "extra" 300k to the table. (that was the scenario she used) But something like 5k-10k difference would be okay.

That's why a lot of these crazy bidding wars end up with financing falling through. That's what happened to our neighbor's house. They got in a bidding war over it last spring and the winner's financing fell through because the it didn't appraise. He sold it quickly but did have to drop the price a bit.

I was told by our agent that sellers won't even look at someone with an FHA or VA loan in our area. We had a conventional loan so we were okay. But that's what I was told. So I guess it really comes down to the loan itself and your region. For a while in the spring, all the good homes went to cash buyers so just needing a mortgage was enough to kick you out of the running.

thank you all again for answers and insight. I am copying and pasting for my friend so she can read. She's very upset over losing this house.

[Thulsa]

Originally Posted by TheLonelyGoatherd

I do know that some loans will allow you to bring cash to the table. But some loans do not allow that and hers didn't. Our broker said we had a little wiggle room but not too much. I never got an exact number but she said with the 1.7M sales price, if it appraised at 1.4M, we couldn't bring the "extra" 300k to the table. (that was the scenario she used) But something like 5k-10k difference would be okay.

I don't understand this, but am really curious. How is bringing a check for the 300K different than just making a down payment that's 300k larger? It sounds like you're saying the loan originator is placing that restriction. But why would they do that? However, "They're just nuts" would fit with some of my experiences.

And what would be the difference between bring an extra 10k or 300k? It would seem to me contract-wise/legally to be the same thing.

[TheLonelyGoatherd]

Originally Posted by Thulsa

I don't understand this, but am really curious. How is bringing a check for the 300K different than just making a down payment that's 300k larger? It sounds like you're saying the loan originator is placing that restriction. But why would they do that? However, "They're just nuts" would fit with some of my experiences.

And what would be the difference between bring an extra 10k or 300k? It would seem to me contract-wise/legally to be the same thing.

I can only explain with our loan how it was explained to me. We are self employed so our loan approval process was much harder. We have to show X amount of dollars in the bank including 6 months of mortgage payments. The more money a buyer brings to the closing table to make up for a low appraisal, the less they have in the bank in case of any future home catastrophes, putting them at a higher risk for foreclosure.
And the bank isn't earning interest on the money you bring to the closing table to make up for the low appraisal. So I think they are salty about that, lol.

Spoke to our mortgage lady today regarding getting a new house. I asked about the appraisal minimum on this house. We had an almost 200k margin. Our offer was 1.7M and the house had to appraise for 1.52M. Below that and I doubt we would have wanted the house anyway. On a lower price obviously the appraisal and loan difference would be lower.

I can see the concern with a buyer bringing too much cash to make up for a low appraisal though. The biggest problem of the 2008 housing crash wasn't cash buyers who paid too much. It was people with loans who overpaid for their house. So it makes sense that banks are careful with a buyer not putting out too much money outside of their down payment.
But in the whole loan process, so many times I was thinking, what do they care? Why do I have to write a letter telling them everyplace we've lived in the past 10 years and why we switched apartments and what brought us to California, etc. There were far dumber questions than concern over a low appraisal. It almost felt like they were looking for reasons to not write a mortgage honestly.

[TheLonelyGoatherd]

I just thought of another thing regarding appraisals being good. They really do keep housing prices grounded a little bit more. If we remove appraisals, then we have banks just loaning money based on what a buyer is willing to pay. And it only leaves room for houses to keep going up. Not good in the long run. As it is, in many parts of LA county, a million dollars won't even get you a shack. So anything that can keep housing prices a little more grounded and realistic and prevent buyers from overpaying (yes essentially saving buyers from themselves) it's a good thing in high cost of living areas where house buying is hard enough.

[Thulsa]

Originally Posted by TheLonelyGoatherd

I can only explain with our loan how it was explained to me. We are self employed so our loan approval process was much harder. We have to show X amount of dollars in the bank including 6 months of mortgage payments. The more money a buyer brings to the closing table to make up for a low appraisal, the less they have in the bank in case of any future home catastrophes, putting them at a higher risk for foreclosure.

Thanks, it makes sense to me now

[TheLonelyGoatherd]

I'm not picking on you Diana. Just trying to give sellers some insight to a buyer's situation and how demands to make a buyer prove they don't have cold feet, actually cause the buyer to get cold feet!

I wanted to give an update about this house deal with my friend. I actually learned quite a bit as a buyer.

I can't link the listing here but she did in our gardening group. You can see the zillow history showing the house on the market for 60 days, going under contract, then back on the market now for less money.
She actually showed an email chain between her and her agent. So I do believe she's telling the truth.

A notice for sellers, don't kill your own deal. Don't let your agents kill your own deal. This house would be sold right now.



[quote]

And having nervous buyers who delay the closing and still won't commit makes sellers nervous. Both sides need to show good faith. You're only seeing one side of this.

She said they not only didn't delay closing, but they wanted it done as soon as possible. A buyer losing their financing because their loan originator didn't fit them properly for their loan shouldn't be considered the buyer delaying closing. Yes the closing is delayed. But in this case, it's not the buyer's fault.
They could have walked after losing financing. Instead they scrambled to get a new loan. I think should count for something to a seller. And the house was relisted the entire time they were securing new financing. The seller had zero to lose waiting on this buyer.

Originally Posted by TheLonelyGoatherd View Post
Right but why would a buyer agree to remove a contingency the day before the appraisal?

Originally Posted by Diana Holbrook

Because they're agreeing to go through with it no matter what. Lots of buyers do, who really want the house and are willing to make up the difference.

Diana I'm quoting you because your explanation seems to be what the seller's agent was erroneously thinking. But this thinking is what killed the deal.

There was no "agreeing to go through with it". My friend needed a loan to get this house. Their loan required an appraisal. This is a jumbo loan and all jumbo loans require appraisals right now. Very black and white situation. No loan = no sale.

If the house appraised, my friend was buying it. If the house didn't appraise, their loan falls through and they have no means to buy this house. So her thinking was, "How can I remove a loan contingency before an appraisal knowing I NEED the appraisal to get my loan?"

What you are saying about, a buyer "making up the difference" doesn't apply here. This buyer did NOT have the money to make up the difference should the appraisal come in very low (like 100k) and that part is irrelevant because her mortgage did now allow the buyer to bring money to closing.


Diana, the second quote of "they (the buyer) are agreeing to go through with it no matter what" is what killed this deal. This buyer had no means to go through with the deal if they lost their loan. And at that point, there was only ONE thing standing between getting that loan and buying this house and that was the appraisal. Her thinking was "if this house doesn't appraise, it is NOT my fault. If I remove a loan contingency the day before my appraisal, what kind of risk am I exposing myself to? Can they sue me ? Can they do more than take my deposit? " She asked her agent and she didn't have definitive answer. This makes the buyer more nervous. They are self employed. Can this seller come after their company? What exactly are the risks a buyer is exposing themselves to when they remove a loan contingency?

Why would a buyer say on paper that they are committing to buying a house knowing full well they have no means to if they lose their financing? (honest question, not rhetorical. Her agent had no answer)

How is a low appraisal translated to a "buyer not performing" ? And that is an honest question too. If a buyer's mortgage broker tells a seller's agent that the buyer is "loan approved" that literally means that buyer performed. Right?


So she and her husband relinquished their deposit and backed out of the deal. Because in their minds, the seller demanding that loan contingency be removed the day before the appraisal meant that they, (the seller and their agent) were afraid the house wouldn't appraise. And it looked suspicious to the buyer. What else are they hiding? Is this why the house was sitting for so long in a hot market? How many other buyers did they lose? (this is what runs through a buyer's mind)

Even if the appraisal came in low, as long as she could get her loan, she was moving forward to buy the house. She said they had absolutely no plans to use a lower appraisal to grind the seller down on price. They were going to pay their original offer price. They weren't looking to back out of the deal or change it in any way. Sellers shouldn't be assuming what a buyer will do. They should have waited to see if the buyer tried to grind them down on price based on the appraisal first. She wasn't going to.

Sellers need to realize a buyer cannot commit to a purchase if that buyer needs a loan. At that point, it's the mortgage company who decides if they will issue a loan. The buyer is at much as the mercy of the mortgage company as the seller is.

My friend said she was given an ultimatum of remove the loan contingency prior to the appraisal or the deal is cancelled. So they beat the agent to the punch and backed out. They lost their deposit but figured they'd lose more than that in a house that likely would have overpaid for.

So her lessons learned as a buyer, she said she never should have waived her own appraisal, and their agent should have actually started a new contract. They were getting new financing with new terms. At the very least the buyer's agent should have been extending the dates on the original contract. And she didn't. So the buyer's agent left her buyer wide open to get hassled.

Seller's agent should have taken the loan approval conversation with the buyer's mortgage broker as the golden goose egg that it was. Your buyer has performed and they are approved. It's only 2 weeks out from the original closing date. Let the appraisal happen. THEN tell the buyer to remove the loan contingency. Because at that point, if the buyer won't remove the loan contingency, THEN it does look suspicious.


My loan is requires an appraisal, so that loan contingency doesn't get removed until that appraisal is done. I don't care if it's day 16 or day 18 of the contract. I will make sure that is clear to my agent and the sellers up front. If that is a problem for a seller, I'll know that's not the house for me.

[tnff]

You know Goatherd, I believe your intent. I think the problem is most of us are not professional real estate buyers and sellers. We buy homes to live in. We sell when we move. It's something we will do a few times in our lives. We aren't experts in the ins and outs of real estate transactions. That's why we hire someone to be that expert which is what we expect the real estate agent to be. The are, after all, marketing themselves as professionals in their industry. Only to find all too often the "professional" is a bored housewife, or some guy trying to pick up easy money in a part time job, and not the expert we expected.

This forum however seems to have a lot of professionals and investors who know far more about the intricacies than you and I will know and as such seem to think the average home buyer should know them too. I think that's why you're getting the responses you are. They're seeing from the eyes of a routine business transaction and we're seeing from the eyes of someone for whom this is one of the few major life changing decisions. Totally different perspectives.

[Diana Holbrook]

Originally Posted by TheLonelyGoatherd

I'm not picking on you Diana. Just trying to give sellers some insight to a buyer's situation and how demands to make a buyer prove they don't have cold feet, actually cause the buyer to get cold feet!

I know you're not picking on me...

You know I'm not actually a party to this transaction, right?

And even if I was, I can't control the actions and decisions of other people.

You're lecturing me as if I would ever advise you, or these friends of yours, to waive appraisal contingency, or that I would ever advise a seller to refuse a contract extension of a few days and put their home back on the market unnecessarily. I wouldn't. I know this is something you feel strongly about, and you're not wrong to feel that way. I merely explained to you the choice the seller may have made in this case, because of factors we may or may not even know about. The seller may be right, wrong, badly advised or crazy. I don't know. I thought exploring these choices would be more informative and interesting than just agreeing with you.

My job is to make sure my client is as informed as they can be about their choices... but the client is the one who ultimately makes the choice. And the other party is in the same boat. It's not up to us, as agents to make these decisions for them.

Sometimes they make perfectly legal decisions you or I wouldn't make. It is still my job to implement their choice.

Goatherd, I hope when you find your home and make an offer on it, you have beside you not only the best advice you can find, but also smart, reasonable, parties on the other side of the table.

It's all any of us ever really want.

And once in awhile we get it! And it's wonderful.

The rest of the regularly imperfect situations that develop, we just do our best to make sure our clients are as well represented and as protected as possible, and we work through the issues best we can.

That's it for now. Have a good Saturday. :-)

[TheLonelyGoatherd]

Sorry I never meant to come across as lecturing at all. I'm honestly trying to help buyers and sellers not shoot themselves in the foot. Given what I went through recently with a stubborn seller and now my friend, I found it intriguing I guess.

I'm not a relator but I've worked in sales for the past 20 years with the past 10 for my husband's company. So I've always found the psychology behind buying and selling to be interesting. There is often a tiny tipping point that can blow a deal.

With real estate, let's be real. The market needs buyers more than sellers. You can have all the sellers you want. No buyers, no sales. And it seems in HCOL areas, there is too much representation of what a seller demands. The problem is when that seller's house has been sitting and they are in denial that while the market is hot, they are not.

I know deals like this folding are as frustrating for the agents involved. So I'm just offering another side to things.

They're seeing from the eyes of a routine business transaction and we're seeing from the eyes of someone for whom this is one of the few major life changing decisions. Totally different perspectives.

Tnff exactly. This is a great point. It's almost easy for those in the business to actually forget what a buyer is thinking and their perspective. And that is huge mistake when working in sales. You can't expect your clients to see your side. You have to see it from their side. In short, give buyers a chance. If they are moving a little slower than you want, making demands they move faster to close a few days earlier can lose the sale altogether.

Sorry I'm just passionate about sales and the people side of things. Didn't mean to come across as argumentative.