Profile picture for briankckim

FSBO and appraisal

Hi,

I'm purchasing a home that is FSBO, and for some reason, my credit union that is providing the mortgage says that it needs purchase agreement that is signed by both parties (which contains the price of the house) before it can do the appraisal.

I believe this FSBO house is priced fairly, but how can I protect myself in case the house is appraised for less than the amount that is agreed on as a purchase price? Is there a clause that we can include in the purchase agreement? (If so, what should the wording be like?)

Thanks!
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September 29 2013 - Grand Island
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Answers (10)

Profile picture for kona209
Thank You so much, for all this excellent advice.  "The Sisters", yes the seller signed the contract, and you were correct what was I thinking, stating if appraisal comes in 15% and above of purchase price, contract is still good.  I went over there this morning with a corrected contract, explained that I must have bumped my head, could we please void the previous contract/offer, showed her the new one that states, this contract is contingent, upon independent appraisal must come in agreed purchase price or above, approval of bank loan with in 15 days (the bank said min. 10-12 days).  If appraisal comes in any lower than $5000.00, of agreed purchase price this contract in null and void.  I have been pre-qualified for home loan, and I did have home inspected.  I also gave seller $1000.00, good faith deposit, in cash. So along with the new contract/offer, I also brought a check for that amount even though they gave me a receipt. They signed the new contract/offer, gave me my cash back, accepted the check for deposit.  Thank You for showing me the light...:)
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September 30 2013
Kona:

We agreed on a price, verbally, then I put my offer in writing on a FSBO contract form, in the "Miscellaneous" section, I put this offer is pending independent appraisal at my cost, if appraisal comes in 15%, lower than my bid this contract is null and void.

Did the seller sign the agreement?  Not sure because it appeared you just constructed a form that was not fully executed.

You have had this property inspected by a home inspector right?  You did that before you went to the bank to get the loan?

Did you include escrow (money you gave to the seller in good faith) when you made your verbal/written agreement?  Who is holding that money?

The word "pending" means the same as waiting for something to happen. "Contingent" means conditional on another action or circumstance.  There is no wiggle room in a sales contract.  It either appraises or the contact is terminated or re-negotiated.

As Mack points out - in the case of a dispute when the language is cloudy the judge has to figure out intent of the parties.  That is not always clear cut.  It does not always come out the way you want it to.

If the contract is for 100K and the house appraises at 90K - you signed a contract indicating you would still purchase the house. Is that correct? (I'm assuming that because your threshold was for a 15% shortfall). 

Does the contract have a clause that says should you fail to get approved by the bank  you do not have to buy the house?

I'm not trying to give you a hard time.  You are asking professionals for advice. We are trying to help you avoid a disaster.  Without seeing the form you are using it is hard for us to tell you what to do.  We certainly cannot give you the words to write as that violates our licenses.

Buying FSBO without at least one of the parties having some idea of the process and legal requirements is like walking on a tight rope blind folded over a tank of sharks.

Continue the dialog out here and one of us will try to help you.  I really urge you to seek some professional advice like a title company, attorney or transaction agent.
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September 30 2013
Just curious Kona - why didn't you put in  that the house has to appraise out for the purchase price - the price you are paying?

This is  usually what is done and expected.........15% below the sale price is a huge difference!
I don't know any buyers who would be satisfied with that differential.

Besides, it all may be a moot point, unless you're paying cash for the house... because -   if you're putting down, say,  20% or less, you will not be approved for the loan if the house doesn't  "appraise out" for the full amount.........are you aware of this?
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September 29 2013
You're welcome, Kona!

This is not the type of clause that an attorney would write, but I think that if things go bad and you need it adjudicated, a seller would be hard-pressed to tell a judge that they didn't agree to it!

All the best,
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September 29 2013
Profile picture for sunnyview
Good luck kona! I hope all goes well with your deal.
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September 29 2013
Profile picture for kona209
Thank You~ that's exactly what we did today.  We agreed on a price, verbally, then I put my offer in writing on a FSBO contract form, in the "Miscellaneous" section, I put this offer is pending independent appraisal at my cost, if appraisal comes in 15%, lower than my bid this contract is null and void.
It sounded good to me thanks for the advice

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September 29 2013
Because I am not an attorney, I am not going to recommend specific text. I do suggest, however, that if the buyer and seller agree to a clause and write it to their satisfaction, they will have a better time enforcing it in court.

Many MLSes have this as part of their standard financing addendum. 
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September 29 2013
There are always glitches which can arise when buyer and seller deal directly.  A verbal agreement is as good as the paper it is written on.

The contract a Realtor uses contains all the clauses and contingencies required by all the parties.

You could contact an attorney and pay them to write up an agreement for you. 

You could pay a Realtor to be a transaction agent and prepare the necessary documents.  A transaction agent fills in the blanks expertly but they do not give real estate advice.
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September 29 2013
Profile picture for kona209
So what do you suggest that the verbal agreement be?  If the appraisal comes in lower than agreed price, they re-write contract accordingly? To the lower price???
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September 29 2013
The wording? That's for an attorney to recommend. Why not first come to a verbal agreement with the seller, then amend the contract accordingly?

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September 29 2013
 
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