Wednesday, January 18, 2012 / by Ira Miskin
The property is a foreclosure in a pleasant sub division in Kennesaw, GA. The Investor (the actual owner of the property's note that is serviced by a Lender) invested the money to clean up and update the property. It is a great move-in condition home and perfect for the young first-time buyer hoping to close the deal on their first new home. A realistic Comparative Market Analysis was completed prior to presenting an offer to the REO listing agent for presentation to the asset manager directing the sale of the property on behalf of the Investor. The asset manager had smartly instructed the REO Agent to list the property at around 10% below fair market value. So, here is a great property at a very good price. Not an unfair tactic on the part of the asset manager, but one our Buyer Specialist was aware of when the offer was written. A multiple offer situation and a highest and best competition were expected, and the Buyers were told that the property would likely sell for around 10% above initial list price. Within days there were multiple offers.
As with all offers our Buyer Specialists present, an Appraisal Contingency exhibit was included. This is an important protection for the Buyer. It states that an appraisal will be completed within a specific number of days following binding agreement, and that if the property appraises for less than the initially agreed selling price, the Buyer has the right to ask the Seller to lower the sale price to the appraisal price. Without this exhibit, the Buyer must pay the previously agreed selling price, even if their lender will only finance a loan for the lower appraisal price. The Buyer would have to come up with the difference in order to complete the sale. The use of the Appraisal Contingency Exhibit is a commonly used, fair and necessary protection for the Buyer.
In this offer, however, the Investor steadfastly refused to accept the Appraisal Contingency stating: "The seller rejected your client's last counter. Seller will not take an appraisal contingency. Seller indicated he will not agree to appraisal/sale price adjustment.
Seller staying firm in his belief if the property is on a multiple offer situation, the buyer is willing to pay the difference.
Please note property is available to any potential buyer. We are getting too many inquiries at the present time, to include buyers that previously submitted an offer."
With the seller (Investor) refusing to accept an Appraisal Contingency, the Buyer is being placed in double jeopardy. First, if the property does appraise for less than the selling price, the Buyer will have to still pay the difference to close the sale. They will have to pay more than the property is worth and start out under water. But if they refuse to pay the difference and back out of the sale, under the terms of the agreement they will be in default and lose their earnest money deposit.
Perhaps there are some Buyer Agents that will let their Buyer take that risk. Not us though.
Buyers... Purchasing a home is an emotional experience; but it is also an important, and often, your biggest investment. In real estate you make your money when you purchase your home, not when you sell it. Buying your home for the right price at the start helps significantly in managing the home's equity value when you sell it.
As for this Investor and asset manager: Are they coy, wise, greedy, myopic? How tough is too tough before Buyers and experienced Buyer Specialists simply must move on and reject an otherwise great property?
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