Purchase price must meet appraisal... but which one?

By
Real Estate Broker with Coldwell Banker Residential

Ran into an interesting little scenario today.

The buyer's contract reads "Home must appraise for full purchase price, or buyer has the option to cancel the contract, with return of earnest money".

So... 20 days into the contract... appraisal comes through... and it passes... (yay!!)... but the buyers decide to use a different lender, because they can't get PMI through that lender ...  the 2nd lender sends in a new appraiser, and guess what... the property doesn't pass appraisal... they're approved for the loan.. and this lender can get them PMI (not sure why)... but it doesn't meet appraisal, and they now want to negotiate the purchase price.

But wait... we DID pass appraisal!  The first one!  It doesn't say that the property must match the appraisal that will in the end be used by the second lender, does it?

I guess the language needs to be changed to: "If home doesn't appraise for full purchase price, or higher (by the ultimate lender), buyer has the option to cancel the contract, with return of all earnest monies."

Yikes!

Posted by

 ALAN MAY, Realtor®
Specializing in Evanston Real Estate and North Shore Real Estate

Coldwell Banker Residential Real Estate, 2929 Central Street, Evanston, IL 60201
847.425.3779      Cell: 847.924.3313      Email: Almay@aol.com

Evanston Real Estate & North Shore Real Estate
Licensed in Illinois

   

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Topic:
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"Whacked"!!!
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Ambassador
958,724
Alan May
Evanston & Northshore of Chicago real estate
Coldwell Banker Residential

Steve - seemed like a pretty simple sentence.. but you are correct... let the attorneys handle it.  Of course, not all states use attorneys.

John - it's not my transaction... but I'll let you know what I learn.

Lenn - lender refused to fund without PMI... but otherwise, a surgical assessment of the situation (and no... not the Jersey Shores situation).

Sandy - it was just another level of protection... the mortgage committment already basically says the same thing.

Larry - not quite ready.. the lender refused to fund without PMI.

Colleen - it is implied... but as you know.. "implication" in a contract ... hmmmm open to interpretation.

 

February 24, 2010 07:40 PM
Rainmaker
863,706
Jane Peters
Connecting you to the L.A. real estate scene
Power Brokers Int'l

There's always something new isn't there.  There has to be something wrong with this picture.

February 24, 2010 10:10 PM
Rainmaker
307,658
Liz Flint
Houston\Tomball Realtor (832)816-8066
Century 21 Hardee-Team Realty

Hey Alan, interesting situation.  Hope all went well in the end.

February 24, 2010 10:28 PM
Rainmaker
145,364
Caren Wallace
Portage Lakes Real Estate Agent
Stouffer Realty, Akron, Ohio

Alan, frustration of the loan process is only getting more demanding! We have to find some courage and steely nerves to weather this storm!

February 25, 2010 07:09 AM
Rainmaker
401,965
Claudette Millette
Buyer, Broker - Metrowest Mass
The Buyers' Counsel

Alan:

I often insert that phrase into an offer, "Property must appraise for the selling price." I have never had the situation happen that you have described but my feeling is that once it appraises, that contingency is therefore removed.

 

February 25, 2010 07:45 AM
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Alan May

Evanston & Northshore of Chicago real estate
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