Home Buying in Palm Springs>Question Details

TedM, Both Buyer and Seller in California

Contract dilemma - What is the price of the house?

Asked by TedM, California Wed Jan 30, 2013

House listed in Cathedral City, Calif in Oct 2012 for $225K. One week after listing date, buyer offered $231K with FHA financing using a Real Estate Purchase Agreement (RPA) without an addendum. There were 6 offers over listing, so sellers asked for Best & Final.

Two weeks after listing date, during the Best & Final process, the same $231K buyer, via an email from his agent, increased offer to $235K with FHA financing.

However, after Best & Final process, sellers chose an all-cash buyer at $225K. One week later, all-cash buyers back out.

Sellers then went back to the highest offer at $235K. The buyer's agent processed a new RPA increasing offer price from $231K to $235K and added an addendum stating "If property appraisal comes in lower than agreed purchase price of $235K, then buyer will pay the difference between the appraised value and agreed purchase price up to a maximum of $3,500." Both parties signed RPA before appraisal.

Four weeks later, the appraisal came in at $206,000.

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Answers

8
Is there any chance that you may switch it from FHA to Conventional with 5% down? There may be an opportunity for both parties to win. If you were to change it to conventional, then you may need a brand new appraisal. The new appraisal may come in higher than your FHA appraisal did. What is so different from this property to other comparables? Is it in a track of homes or is it a custom home or a home where there are no real comparables? From a lender's point of view here is the problem. This happens more often than not. Since the new HVCC laws and now the Dodd-Frank laws took effect, lenders have lost the ability to reach out to the appraisers. In fact, all lenders are required to use an AMC (Appraisal Managment Company) when ordering appraisals. The problem with this is that when you have a property that needs some detail knowledge of the comparables or of the current market, as a lender we have not control as to who will actually show up to conduct the appraisal. Appraisers from out of town take on assignments in markets that they have no knowledge in or if its a custom home, that is the worse. So what was designed to help and protect the consumer, although well intentioned, is not always the case.

If you need a second opinion, give me a call. I would love to help you sort through all this. 951-210-2101.

I work for a direct lender headquartered in Irvine, California. Feel free to look me up at the following websites.
http://www.impacmortgage.com/edeleon
http://www.facebook.com/LoansByEddie
http://www.linkedin.com/in/eddiedeleon

Thank you for looking. I look forward to hearing from you.

Respectfully,
Eddie W. de Leon
951-210-2101
NMLS #238369
0 votes Thank Flag Link Fri Feb 1, 2013
I appreciate your advice- I have a question about Appraisals. It seems as though when this particular appraisal was done, the appraiser had access to the info in the addendum (see question above). Should an appraiser be privy to such contractual info? [It is my belief the buyer's agent supplied the appraiser that specific contractual info to get a lower appraisal.]
It's become a contract dispute. Please re-read the series of events in the question. We see nothing in the addendum that means we HAVE to sell the house to the prospective buyers for 209,500. But the prospective buyers are dragging this out. They wanted Mediation - so we obliged and mediated last week. They 'went up' to 215K and we 'went down' to 225K. There was no resolution and I don't see why I have to! Now they are requesting Arbitration. We feel like our hands are tied and we HAVE to do all this nonsense when this is a non-issue... there is no THERE there. What a mess- Any advice?
Flag Fri Feb 1, 2013
$209,500 - Would be the current "Contract" price.
0 votes Thank Flag Link Thu Jan 31, 2013
We are the sellers. We see nothing in that addendum that means we HAVE to sell the house to the prospective buyers for 209,500. BUT, nonetheless, the prospective buyers are dragging this out. They wanted Mediation - so we obliged and mediated last week. They 'went up' to 215K and we 'went down' to 225K. There was no resolution and I don't see why I have to! Now they are requesting Arbitration. We feel like our hands are tied and we HAVE to do all this nonsense when this is a non-issue... there is no THERE there. What a mess... Any advice?
Flag Thu Jan 31, 2013
I should have been a little clearer with my question:
After reviewing the facts of the situation, what do you think is the current contract price?
0 votes Thank Flag Link Thu Jan 31, 2013
Ted,


You must be very frustrated with this situation. I am sorry you are having to go through this. However, the market is rapidly changing. You got some very good advice on here. The question you posed is what is the value of the home. Value is usually determined by what a willing Seller and a willing Buyer agree on a price. Yet, in real estate there are external factors that must be dealt with.

The options are:

- Communicate with appraiser - get new comparables to substantiate the price. Make a good case for value. There is a chance you may get the appraisal changed.
- Seller reduces price.
- Buyer pays the difference.
- Seller and Buyer would need to both come together.

Scott Newton - Broker
760.898.4496
0 votes Thank Flag Link Thu Jan 31, 2013
From what you have said the price is $209,500 The appraised value plus the max $3,500 over.
0 votes Thank Flag Link Thu Jan 31, 2013
Are you sure? We are the sellers. We see nothing in that addendum that means we HAVE to sell the house to the prospective buyers for 209,500. But the prospective buyers are dragging this out. They wanted Mediation - so we obliged and mediated last week. They 'went up' to 215K and we 'went down' to 225K. There was no resolution and I don't see why I have to! Now they are requesting Arbitration. We feel like our hands are tied and we HAVE to do all this nonsense when this is a non-issue... there is no THERE there. What a mess... Any advice?
Flag Thu Jan 31, 2013
Since the appraisal does not meet any of the specified terms of the agreement, and exceeds the $3,500 maximum limit, it would appear that these parties would find themselves back in the negotiation stage again.

The contract price of $235,000 is not an appraisal supported price.

Bill
0 votes Thank Flag Link Thu Jan 31, 2013
We are the sellers. We see nothing in that addendum that means we HAVE to sell the house to the prospective buyers for 209,500. But the prospective buyers are dragging this out. They wanted Mediation - so we obliged and mediated last week. They 'went up' to 215K and we 'went down' to 225K. There was no resolution and I don't see why I have to! Now they are requesting Arbitration. We feel like our hands are tied and we HAVE to do all this nonsense when this is a non-issue... there is no THERE there. What a mess... Any advice?
Flag Thu Jan 31, 2013
Best bet is to approach the seller for a reduced price. Since you are operating with an FHA loan, you really need the home to appraise. This is not uncommon in a rising market.
0 votes Thank Flag Link Wed Jan 30, 2013
Robert, We are the sellers. The prospective buyers are forcing us to sell them the house for $209,500. We see nothing in that addendum that means we HAVE to sell the house to the prospective buyers for 209,500. But the prospective buyers are dragging this out. They wanted Mediation - so we obliged and mediated last week. They 'went up' to 215K and we 'went down' to 225K. There was no resolution and I don't see why I have to! Now they are requesting Arbitration. We feel like our hands are tied and we HAVE to do all this nonsense when this is a non-issue... there is no THERE there. What a mess... Any advice?
Flag Thu Jan 31, 2013
Hi McLovin,

The purchase price is $235K - as the contract stands. Now, the buyer will only get the $206K financed. So, they would need to pay the difference of $29K in cash. However, they stated in the addendum they would only pay $3,500, not $29K. So, that said, the seller can lower the price to $209,500 or the buyer can cancel contract, or the seller and buyer can meet somewhere in the middle (but neither of them has to). The FHA appraisal of $206K will stay with the property for 6 months so if the current contract is cancelled and the seller accepts another offer, if it's FHA the appraised value will still be $206K so the seller would probably not want to accept another FHA offer if they want more than the $209,500 the current buyer is offering. An addendum will be needed to change the purchase price to the $209,500.

Shanna Rogers
SR Realty
http://www.RealtyBySR.com
0 votes Thank Flag Link Wed Jan 30, 2013
Shanna, We are the sellers. The prospective buyers are forcing us to sell them the house for $209,500. We see nothing in that addendum that means we HAVE to sell the house to the prospective buyers for 209,500. But the prospective buyers are dragging this out. They wanted Mediation - so we obliged and mediated last week. They 'went up' to 215K and we 'went down' to 225K. There was no resolution and I don't see why I have to! Now they are requesting Arbitration. We feel like our hands are tied and we HAVE to do all this nonsense when this is a non-issue... there is no THERE there. What a mess... Any advice?
Flag Thu Jan 31, 2013
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