I apologize as this is not technically an investing question in the spirit of this forum but I’d like to get opinions anyhow.
We just found out that the condo that my wife and I are suppose to close on next friday will not appraise for the value of the loan we need. This is not a shocker as we agreed to a price last January (Pre-Construction). I knew the market was going down a little bit and thought the 80k we bought it for under “Expected Retail Value” because it was Pre-Construction seemed like a good buffer at the time. Here are the details of the transaction…
Expected Retail Value (by contractor at time of purchase): 560k
Agree Price to purchase at in Jan’ 07: 480k
Current Retail Value (based on comp of exact model in another building): 465k
Total invested by my wife and I so far: 20K
So the question is if we go back to the builder and ask to adjust the price, who has the upper hand? We risk losing 20k I think, they risk losing a sale and the market going down hill fast.
it all depends what your contract says. everything is negotiable in my book. mostly likely you can opt out of closing and he will keep your $20k, but of course he is left holding title to a condo instead of a wad of cash from the sale. That give you power to negotiate. Moreover, if iuts not apprasiing at the agreemd upon price, the next guy he triues to sell it to will likely have the same problem.
Here’s my opinion, and educated though it is that’s all it is, an opinion.
No, you should not be held to your contract because the seller’s found an appraiser that values the property higher nor because the seller has found you financing on that higher price. You went to a lender in good faith, had the prop appraised, and it didn’t work. Frankly, if the seller tried to push this, any half-brain RE agent or attorney could get your money back and probably more. I wouldn’t worry too much.
The problem is that technically if Wells Fargo has you approved you do meet the financing contingency. Have you taken into account that your appraiser did a poor job? Or that Wells fargo’s appraiser is more familiar with the area because they do more appraisals in that area? You need to review the appraisal and see where the comps they are using are from. If they are all from the building you are buying in the value could be skewed. Also, chances are the builder is not going to drop his price because that will negatively his ability to get his others units appraised. You may ask for other concessions like six months of payments, but if he drops his price then it drops the value of all his units.
I’m not sure which appraiser knows the market better, but I know that getting the comps from my appraiser friend shows not one that is in the same price range that Wells Fargo is saying ours is appraising at. I grew up in this area (30 years) and I know the developments where all the comps are at so I’ve got a pretty good idea how comparable they are. Also it should be mentioned that the same exact unit in the other building is listed at 449,900(25k less then our unit, and it has upgraded kitchen and carpets).
Now with all this said, if our broker’s re-appraisal of the property is the 475k and we can get the mortgage then that’s fine, I will be happy to close at that price. But I can see how our broker’s appraisal was only for 455k after looking at the comps myself and knowing the area. We will hopefully find out today.
The problem is that technically if Wells Fargo has you approved you do meet the financing contingency.
Again, getting “approved” by a lender (and appraiser) that is not only referred by the seller, BUT working FOR the seller is not approved. Don’t know, but I’d also wager that Wells Fargo is also the lender that has invested in the builder on these as well, which makes it even MORE beneficial for them to move the units along even if the value is (heck, especially IF) no longer there. Hardly a neutral third party loan or appraisal.
It turns out my mortgage company won’t fund any loan towards a condo in this community. There is just to much uncertainty with the condo development because there are 14 more buildings that still have to go up and have no guarantees that it will be finished. So they denied our loan, which I don’t blame them. So this may seem like we have our out! Buttt…
…upon closer reading of the contract, way down at the bottom it states (paraphrased)…
“If the buyer is denied a mortgage from a lending institution the seller has two options. (1) to return the buyers deposit and let them out of the contract based on contingency, or (2) Seller may select a lending institution for the buyer to apply for a mortgage.”
Now, stupid me for signing a contract that has this clause. Pretty much negates the contract being contingent on loan clause because obviously DR Horton has Wells Fargo in their back pocket and would approve a homeless wino with twelve kids just to allow DR Horton to get rid of the property.
After this is all said and done, we are getting the condo for the price we agreed upon with an average rate (6.31) so I should be happy. But I’m not because I feel taken advantage of. I mean, how can Wells Fargo give a proper appraisal of the unit when to get the value it is using comps in which they also appraised and gave loans for in the same building??? Isn’t that sort of a conflict of interest? Aren’t they basically committing some sort of fraud by inflating the prices in the community in order to benefit DR Horton and themselves??? ahhhh I don’t know, they are sending out the appraiser today or tomorrow so we’ll see what it comes back at.
With all that said, I signed a contract and I’ll go by it. :cussing