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rgarner, Home Buyer in Livonia, MI

Getting a house built and FHA appraisal will be needed, what happens if the appraisal price is lower than sellers cost

Asked by rgarner, Livonia, MI Sat Apr 21, 2012

? The seller has added a Exhibit clause that they can keep my 3.5% and additional monies...what can I do to prevent this?

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Answers

6
you should really be asking your buyer's agent about this... it is impossibe to give you comprehensive advice without reading all documents or knowing all details. Geerally speaking the 3% deposit can be kpt as "liquidated damages" if the buyer fails to perform. Liquidated damages means it is hard to estabish the seller's losses due to the buyer's lack of performane, so you both agree to that the 3% is a good amount.'

That said, you should have an appraisal contingency... which says if the property does not appraise at the offered price thenyou can cancel and get your deposit back... HOWEVER, all of thse contingencies, though typical, are often negotiated away... so without knowing your specific situation it is hard to comment.

If you like y answer or find it useful, please give it the thumbs up or select it as the best answer...

Best of luck, and negotiate strategically, not emotionally.

Ron
1 vote Thank Flag Link Sun Apr 22, 2012
This is a fairly typical clause in the builder’s contract nowadays. The reason for this is if you choose many “nonstandard upgrades” then there is a chance the home may not appraise. There is also a chance the home may not appraise because of external factors beyond anyone’s control. The builder and the banks builder are covering their butts; you can thank the Dodd- Frank act as well as the Obama administration for the new rules. Ps some of the “rules” were needed but as usual the government went too far and has made things worse.
0 votes Thank Flag Link Mon Apr 23, 2012
Most purchase agreements have an escape clause is the appraisal is less than the purchase price. Does yours?
0 votes Thank Flag Link Sun Apr 22, 2012
To answer your mortgage question the FHA loan will only be based on your appraised value. If the appraisal is less than the purchase price your loan will be insufficient and you will need to bring more money to the table.

However, I believe you are really asking a legal question about a contract. There is little you can do to prevent something that a contract provides as a remedy after you have signed it other than perform on the contract.

You want to review your contract with your Realtor and an attorney to understand whether you have an appraised value contingency in the event the appraisal does not come in. You also need to understand what remedies the contract provides if you are unable to perform on the purchase because the appraisal does not come in. Many builders contracts give them the right to retain any deposits put down, but does not necessarily limit their remedies to just that.

Again, I would review the contract with your Realtor and a good attorney to understand your rights and what the contract provides.
0 votes Thank Flag Link Sun Apr 22, 2012
I guess it depends on exactly what your purchase agreement says will happen in that case. If you used a real estate agent have them go over this with you and explain it further. If you didn't maybe whomever you did this with will go over this with you so you have a better understanding of how things will go.
0 votes Thank Flag Link Sun Apr 22, 2012
Do you have a real estate agent that represented you in the contract?

You may want to look at fha loan guidelines with your loan officer.
0 votes Thank Flag Link Sat Apr 21, 2012
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