Thursday, May 11, 2006

House 3: May Fall Through (Updated)

I just found out that the buyer's lender found out this property was a flip and they want an addendum to the contract. The addendum states that I will sell the house for whatever the appraisal comes back at (or $205,000, whichever is less) AND I will still contribute 3% of the price.

There is no way any seller in their right mind would agree to this. Suppose the appraisal comes back at $175,000? I'm not going to agree to sell the property for an unknown amount determined by some stranger that is paid by the buyer. That conflict of interest seems pretty clear to me. My agent thinks the buyers will have to back out if I don't agree, but so be it. I rejected the addendum and my agent is moving the listing status back to active.

Update: Things are changing by the minute. My agent talked with her broker about this addendum and we all agree it's poorly written and there is no real need for it. The addendum actually states that if the appraisal comes back for less, than I will still contribute 3% towards the selling price. It doesn't actually specify a selling price and leaves things very vague about what happens should the appraisal not match the selling price. But this is unnecessary because the standard sales contract already includes a clause where if the appraisal doesn't match the sales price, the parties can renegotiate or cancel the sale.

How funny! I just got another call. Turns out, the buyer's agent didn't know that the standard sales contract was contingent on the appraisal! They are happy with that and are ordering the appraisal now and are moving forward without the addendum. I asked if this was a new agent and my agent said it was. And it was the buyer's mortgage broker that asked for the addendum to be written in the first place. So it appears we were just dealing with some uninformed people. Once things were explained, the problem went away.


orestn said...

Good for you, Shaun. It sucks to have a deal fall through when you're so close, but I admire the way you're sticking to your guns; you know the outcome you're after and not compromising in going after it.

Bginvestor said...


Have the buyer pay for the appraisal and if the numbers meet the criteria, your done.

If the buyers aren't willing to risk the appraisal costs, than stop the deal.

Shaun said...

bginvestor - Your comment was left right before I updated the post, so you didn't have the latest news. However, I think the problem stems from the fact that the buyer is poor. He's getting 100% financing. Additionally, everyone else wants to be paid - the appraiser, the mortgage broker, etc., which is the reason for the 3% seller contribution. That money is used to pay all these people. It seems this whole thing stemmed from the mortgage broker. He is pretty confident his appraiser will match the sales price, but he is worried that a lender will see this is a flip and order a "desk review" of the appraisal, which is basically another appraisal done by someone behind a desk and not looking at the property. If that one comes back lower, then the lender won't fund at the sales price, the deal falls through, and the mortgage broker doesn't get paid. He (or the buyer) would actually lose money because they paid for an appraisal for a sale that didn't happen.

Anyway, education seems to have solved the problem. For now :-) We still have to worry about that random desk appraisal being ordered.

Viridian said...


Sorry to veer off topic, but I couldn’t find a better place to say I think you have a great blog. So much so that I gave you a shout-out (see link below) in my own fledgling real estate investment blog. Best of luck with House 3...

Shaun said...

Wow! Thanks for the kinds words on your blog!

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