Should I Give Up My Earnest Money

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Topic Author
RelaxNoMore
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Should I Give Up My Earnest Money

Post by RelaxNoMore »

3 weeks ago, we made an offer of $1.08M for a single family property listed at $850K in the great Seattle market, with $50K earnest money, all contingency waived. However, the appraisal came in at $1M. We now have serious buyer’s remorse, because we felt we made an irrational decision in the bidding war. With only 10 days left to close, we really appreciate your thoughts.

We are a young couple planning to have kids in the next year or 2. Soon we will out grow our current home, a 1000 sqft townhouse, so looking for a bigger house. For the past 3 months, we focused on areas that are considered good locations (school, amenities, etc). We made 6 offers, but all were outbid. The winning offers were 20 - 30% above the listing price, 10% over our offered price. Then we looked around other less expensive areas. When we toured this house, we were instantly attracted by the house itself, layout/size/high-ceiling/large backyard/full of sunlight, etc. We convinced ourselves to make offer since there is no perfect deal in this market.

However, after seeing the significant low appraisal, we are more and more feeling uncomfortable with this purchase. The house was built in late 80th, appliances need replacements too. Another $50K - $100K will be needed to renovate. The appraisal report shows that the house size is actually 10% smaller than the county record. We could in theory still make the down payment and make up the gap. But we wouldn’t have cash left for remodeling. Considering purchase price plus reno cost, we would be one of the most expensive homes in the community, we worry about the growth potential of this house for future sell. On school zone, its assigned elementary school is not great. Lastly, the location is now 25min drive away from work, we do worry about increasing commute time after COVID.

We are seriously consider walking away from deal. This would mean a 100% loss on the $50K earnest money. It is a very expensive and painful cost. Plus that our future down payment will be reduced. But we felt it’s better than buying high in an already hot market. I do not attempt to predict the future of housing prices. But I believe when the market stabilizes, we won’t be so carried away by the emotions. There’s a possibility we may still buy at a higher price. But we wouldn’t need to make a million dollar decision by only spending 15 minutes to walk around the house.

Our financial situation
* Cash - $300K ($250K now, subtracted earnest money)
* Investment account - $1.2M
* Retirement account - $150K
* Existing home - Current market value $950K, remaining mortgage $600K, 2.5% interest rate. It is a small 1000 SQFT townhouse in a good urban location close to many attractions. We would like to keep it and rent it out on Airbnb if we buy a second house.
* Income - $500K/Year (before tax)
* Monthly living cost - $7k (existing mortgage, tax, insurance, utilities, living expense)

We are in a tough situation and would appreciate your thoughts.
yoga
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Re: Should I Give Up My Earnest Money

Post by yoga »

Yes, expensive mistake but will save a lot of future heartburn
59Gibson
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Re: Should I Give Up My Earnest Money

Post by 59Gibson »

$50k is a lot to eat, but you can afford to. Same as you can easily afford to buy the house. In this mkt an appraisal coming back less than 10% off is not that unusual.
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Re: Should I Give Up My Earnest Money

Post by Misenplace »

This thread is now in the Personal Finance (Not Investing) forum (real estate).

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dbr
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Re: Should I Give Up My Earnest Money

Post by dbr »

It might be you should have cold feet, but I don't think an appraisal is justification for throwing away $50k. Other reasons may weigh differently. An appraisal is a very iffy number.
kelvan80
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Re: Should I Give Up My Earnest Money

Post by kelvan80 »

In this case I would ask the realtors, you and the seller to split this 3 ways to see if you can get the amount down you'll have to eat. Maybe the seller comes down $10k in price, ask the realtors to give up $5k each something like that. It just depends on how much you love the house and if you think this market is going to even out soon.
123
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Re: Should I Give Up My Earnest Money

Post by 123 »

In a hot rising market I would expect you might have to pay 10% over appraisal to close a deal. If you back out you lose $50K earnest money, if you proceed you may overpay by up to $80K. In a rising market (or any market) you may overpay some amount, it happens. What does your agent say about adjusting the closing price with the seller? (You don't know how far above your offer was over the alternatives.)
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Wiggums
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Re: Should I Give Up My Earnest Money

Post by Wiggums »

I wouldn’t walk away and give up $50k over the lower appraisal. I also wouldn’t expect get you to get the money for improvements out of the house if the market softens or in the near term. The owners offered the house at 850k causing a bidding war in a hot market.

I looked at a similar house at 1.1M, taxes on 1M, needed upgrades. It felt overpriced to me given that it had the original roof, hvac systems, kitchen, etc. We felt like the house was priced as if it were brand new or at least had new appliances.

It’s a tough spot to be in, but I encourage you to weigh the pros and cons.
Last edited by Wiggums on Sun May 16, 2021 1:57 pm, edited 1 time in total.
yoga
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Re: Should I Give Up My Earnest Money

Post by yoga »

The not great schools, commute concerns and remodeling costs seem to all be causing concern. To me it seems the switch was flipped to regret with the feeling of additionally getting a bad deal on top of everything else. Good luck with your decision OP.
LeftCoastIV
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Re: Should I Give Up My Earnest Money

Post by LeftCoastIV »

Your current home is appreciating in the same crazy market as the new home.. If you want to lower your exposure to the frothy market, you could sell your current house.

IMO, the appraisal isn’t a reason to walk away, when it’s $1M vs $1.08M.

Our previous house was in a neighborhood where people let their homes and properties decline. Our current neighborhood is one where people invest to remodel their homes or build new ones. There is a “rising tide lifts all boats” benefit to the latter, or what economists would call a positive externality. Do you think your new neighborhood will be invested in by the neighbors?
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RelaxNoMore
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Re: Should I Give Up My Earnest Money

Post by RelaxNoMore »

kelvan80 wrote: Sun May 16, 2021 1:41 pm In this case I would ask the realtors, you and the seller to split this 3 ways to see if you can get the amount down you'll have to eat. Maybe the seller comes down $10k in price, ask the realtors to give up $5k each something like that. It just depends on how much you love the house and if you think this market is going to even out soon.
We already talked to seller. They are firm on the price, because they expect to put the house back on the market for more.
Tortoise2030
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Re: Should I Give Up My Earnest Money

Post by Tortoise2030 »

I wouldn't let the lower appraised value be a factor in your purchase decision. Do what you would have done had the appraisal come in at purchase price.
Topic Author
RelaxNoMore
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Re: Should I Give Up My Earnest Money

Post by RelaxNoMore »

yoga wrote: Sun May 16, 2021 1:50 pm The not great schools, commute concerns and remodeling costs seem to all be causing concern. To me it seems the switch was flipped to regret with the feeling of additionally getting a bad deal on top of everything else. Good luck with your decision OP.
Yes, this is spot on. We are also concerned about the smaller-than-listed square footage when we have to sell in the future.
sailaway
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Re: Should I Give Up My Earnest Money

Post by sailaway »

Since you will be out $50k either way, you are really just talking about a difference of $30k if you do go through with the purchase.

It sounds like you don't really want this house anymore, though. Think long and hard about that.
BillWalters
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Re: Should I Give Up My Earnest Money

Post by BillWalters »

Close, then list without a sellers agent (flat fee to place on MLS).
Dave55
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Re: Should I Give Up My Earnest Money

Post by Dave55 »

The $1M appraisal verses your offer of $1.08M, would not get me to back down.

Dave
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mdavis6890
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Re: Should I Give Up My Earnest Money

Post by mdavis6890 »

I am neither a lawyer or a real estate professional.

If you want, you CAN work with your agent to weasel yourself out of the deal. You might (should) have some ethical qualms about this, but you can still do it. Your main leverage is that the seller can't get your earnest money from escrow without your sign-off, which you won't provide. So you just tell them to cancel the deal and give your money back, or you'll just wait them out. If they did decide to sue you they might win, eventually, but how long will that take?

You might go back and (re)negotiate for the appraisal price, 1.0M, and see what they say. If they say no you can try to force their hand as above, and if they agree then maybe you'll feel better about the deal.
av111
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Re: Should I Give Up My Earnest Money

Post by av111 »

Are you kidding me? 8k difference is significant for 50k home. It is a rounding error for 1m home

If you liked the home, why would you pay 50k to walk away
AV111
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Re: Should I Give Up My Earnest Money

Post by av111 »

Are you kidding me? 8k difference is significant for 50k home. It is a rounding error for 1m home

If you liked the home, why would you pay 50k to walk away
AV111
bluebolt
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Re: Should I Give Up My Earnest Money

Post by bluebolt »

av111 wrote: Sun May 16, 2021 2:24 pm Are you kidding me? 8k difference is significant for 50k home. It is a rounding error for 1m home

If you liked the home, why would you pay 50k to walk away
It's an $80K difference.
adestefan
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Re: Should I Give Up My Earnest Money

Post by adestefan »

Would you have the same feelings if it wasn’t for the appraisal?
Archimedes
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Re: Should I Give Up My Earnest Money

Post by Archimedes »

The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
nitpick
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Re: Should I Give Up My Earnest Money

Post by nitpick »

I wonder if you used escalation clause or you just put a bid of 1.08M. If you used escalation clause, at least you know that people were willing to buy that property around 1.08M. But again, if your current home is in good location and if there is no urgency to move, if I were you, I will forget about 50k and will get out of the deal. My reasoning is if you are going to spend another 50k to 100k in renovation anyways, why not buy something which doesn’t need as much renovation. $80k below appraisal is a lot to be honest.
nitpick
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Re: Should I Give Up My Earnest Money

Post by nitpick »

Archimedes wrote: Sun May 16, 2021 3:29 pm The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
This is the best advice! Lawyer up if needed!
Big Dog
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Re: Should I Give Up My Earnest Money

Post by Big Dog »

nitpick wrote: Sun May 16, 2021 3:31 pm
Archimedes wrote: Sun May 16, 2021 3:29 pm The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
This is the best advice! Lawyer up if needed!
Agree with both of these posts.

OTOH, the appraisal came in $80k less than you expected so you are willing to forfeit $50k? That math don't make sense to me. The poor school district and other concerns you have posted are much bigger issues --- Real Estate is all about Location, Location, Location -- as those things can't be fixed.

I'd try to negotiate down the earnest money based on the square footage being misrepresented. But then a local RE attorney might say that 10% is close enuf so its not actionable.
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RickBoglehead
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Re: Should I Give Up My Earnest Money

Post by RickBoglehead »

Archimedes wrote: Sun May 16, 2021 3:29 pm The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
This is why everyone should have a lawyer involved in a real estate transaction...

I'm confused why the mortgage contingency clause wouldn't be the out. It should have been specific enough to now be the way out.

Home inspector should have measured home, as should buyer's agent and buyers.

Ask for a second appraisal. Hundreds of dollars vs losing $50k.

When response is "no contingency clauses" refer to my "Irrational Exhuberance"replies in numerous recent threads.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
Archimedes
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Re: Should I Give Up My Earnest Money

Post by Archimedes »

Most of the hottest real estate markets these days, where multiple bids rule the day, will result in rejection of any offer with a mortgage contingency. You can argue that no mortgage contingency constitutes irrational exuberance, but then you simply will not be able to purchase a home in one of those hot markets. You will have to sit back and wait for more rational times. When those more rational times come, prices may come down, or prices may be 20% or 30% more than they are today. No one knows.
LeftCoastIV
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Re: Should I Give Up My Earnest Money

Post by LeftCoastIV »

BillWalters wrote: Sun May 16, 2021 2:00 pm Close, then list without a sellers agent (flat fee to place on MLS).
Not to sidetrack the thread, but I thought you had to use an agent to participate in MLS. How does a homeowner directly list on the MLS?
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mrspock
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Re: Should I Give Up My Earnest Money

Post by mrspock »

What's the wording like on the earnest money clause? In some markets the seller has to prove harm to get the money, in a hot market there very little harm to the seller since they have multiple offers, can re-list and insta-sell etc.

Also are there any other loop holes you can use? It might be worth consulting an attorney to see what they say. In a hot housing market the seller will likely be upset, but not willing to sue over $50k -- as usually they have to justify the harm in most markets, which they will be unable to do so. The seller's disclosure comes to my mind, as you can argue with them they didn't disclose X or Y or Z ("dangerous neighborhood", noise from airplanes, whatever...), and they can disagree all you want, but at that point they need to decide if it's worth suing you for $50k when there's another offer waiting.

As such, you'll probably not get a Christmas card from the seller (or their agent), but you might be able to wiggle out with your money. Also quickly googling shows you probably want to read "HB 1730", you can just terminate the contract and demand the money back from the Escrow company, they have 15 days to object. Honestly, if I was the seller, I'd be pissed off, but I'm not going to sue you over $50k...life is too short.
Last edited by mrspock on Sun May 16, 2021 4:24 pm, edited 5 times in total.
59Gibson
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Re: Should I Give Up My Earnest Money

Post by 59Gibson »

LeftCoastIV wrote: Sun May 16, 2021 4:11 pm
BillWalters wrote: Sun May 16, 2021 2:00 pm Close, then list without a sellers agent (flat fee to place on MLS).
Not to sidetrack the thread, but I thought you had to use an agent to participate in MLS. How does a homeowner directly list on the MLS?
Easy w/ flat fee listing service, you are your own agent. You list property, take pics, write description..etc. Submit listing to the broker( you pay $200) who lists on local MLS. You decide what commission split and/or bonus to offer buyer's agent. Saving yourself the listing agent commission. In this type of market it can be a no-brainer, really any type. You can always hire an attorney to review contract if not comfortable
straws46
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Re: Should I Give Up My Earnest Money

Post by straws46 »

Something to keep in mind - Appraisals, by their very nature, cannot keep up with rising values. MAI appraisals are based on prior sales so in a rising market the comparable are always reflecting a lower value. The opposite holds true in a declining market.
New Providence
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Re: Should I Give Up My Earnest Money

Post by New Providence »

Cold feet is understandable, but I think that the purchase can still go forward. The appraisal is just one of many factors and does not take into consideration current market conditions.

Continue with the purchase, make it work. You will come out OK if you stay in the house for many years. That will be the key factor at the end of the day.

Good luck.
Hazel-Rah
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Re: Should I Give Up My Earnest Money

Post by Hazel-Rah »

I would never forfeit $50k. That is not a financially responsible move. Come up with the $80k using your investment or retirement accounts and then fill those back in using your salary over time. Or sell the current home instead of renting it. Would you ever give away $50k for any other reason in life?

If the appraiser made a mistake in the sq. footage of the home that may explain why the value of appraisal did not meet expectations, get another appraisal and have your agent present to point out all the good features and challenge the comps too. If the county record is wrong on size of property then you can back out of the deal due to the misinformation shared when marketing the property and get your earnest money back.

If you don't want the property anymore (and it is not just cold feet) then it becomes even more important to find a way to get your earnest money back. That was 10% of your gross annual income - you wasted more than a month of your year to give away money for nothing in return... not acceptable. I would rather buy it and rent it, or buy and re-list in a year than to give away so much money.

You are speculating that the housing market may decline soon to help you buy in the future but you are about to realize an actual loss of $50k unless you get smart about this. Reminds me of buy high sell low mentality. Don't give away your money.
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FOGU
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Re: Should I Give Up My Earnest Money

Post by FOGU »

Do NOT just walk away from $50k.
Among the square footage deception, the appraisal shortcoming, and whatever else you can come up with, you have colorable arguments to demand your earnest money back and walk away. Make the arguments, via your attorney, maybe you walk away with 90% or 70% or some other perecent. That's a lot better than just giving away $50k to the owner who will just re-list and sell to someone else without losing a dime, and be $50k richer for your passivity. $50k is worth fighting over.
dukeblue219
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Re: Should I Give Up My Earnest Money

Post by dukeblue219 »

I hope you're basing the school thing on something other than a numerical score on a certain website. It's (IMO) insane the weight people put on that site when it tells you zero about what the school can do for your kid. It simply tells you how other kids have performed, and that's often a direct function of socioeconomic factors.

Honestly it sounds like you have cold feet and are looking for an out. If you have to, at least fight for your earnest money. It's not common (from what I've heard) to actually lose the earnest money. There's always a way to recover it.
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Watty
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Re: Should I Give Up My Earnest Money

Post by Watty »

One thing that has not been mentioned is that it might be possible to find someone who would be willing to take over the contract and buy the house and that could allow you to get your $50K back. With only 10 days that might be a longshot but in a crazy housing market it is not impossible.

As others have said work with a lawyer to try to figure out a way to get your earnest money back. If nothing else that may allow you to sleep better at night and not wonder if you should have tried harder.
RelaxNoMore wrote: Sun May 16, 2021 1:28 pm
we made an offer of $1.08M
...
* Existing home - Current market value $950K, remaining mortgage $600K, 2.5% interest rate. It is a small 1000 SQFT townhouse in a good urban location close to many attractions. We would like to keep it and rent it out on Airbnb if we buy a second house.


* Income - $500K/Year (before tax)
.....
Lastly, the location is now 25min drive away from work, we do worry about increasing commute time after COVID.
Keeping your townhouse as a rental likely does not make any sense because you would be giving up the homeowners capital gains exclusion and you would also have almost $2 million in real estate in the same city which is a diversification problem. If you sold the townhouse you could easily afford to do all the remodeling you want.

The house you bid on is only about 10% more expensive than your current house. That could explain why you are going from a small desirable place to a much larger place with lots of issues. You basically traded size for issues. There is no rule of thumb but when people decide to upgrade their housing their next house is often 50%+ more expensive. Your budget may have been too low to really get a big improvement.

With the commute you also need to be concerned that it might be a lot worse 10 years from now. When I bought my current house it was a pretty consistent 30 minute commute to my office. By the time I retired 13 years later there had been a lot more building and the traffic had gotten worse and it was 45 minutes on a good day and it was a lot more variable and there was a lot of days when it took longer, sometimes a lot longer.

Assuming that you cannot get a lawyer to get you out of the deal I would just forget the $50K and ask myself if I would buy the place for $1.03 million today with the way you feel about the house. If not then getting out of the deal would make sense.

Losing the $50K would sting but one way to look at it is that you paid $50K for a 30 day option to buy the house while you did your due diligence.

It is easy to be loose with other people money but with your income $50K is only about two months income. Lots of people have made mistakes that cost them two months income.
Goldwater85
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Re: Should I Give Up My Earnest Money

Post by Goldwater85 »

Appraisals always lag in a hot market. If there are other concerns, fine, walk it. But don’t blame it on the appraisal.
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ResearchMed
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Re: Should I Give Up My Earnest Money

Post by ResearchMed »

Archimedes wrote: Sun May 16, 2021 3:29 pm The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
I agree that this should have been addressed, but apparently a few weeks ago?
Waiting this long (or so it appears) changes things a bit. Presumably, it was "okay" when you first found out.

But the appraisal is *not* a "significant low appraisal".
And you offered a price you felt comfortable with.
The "lower" appraisal could simply be the lag in a rising market. No surprise there.

You loved the house?
Your current house is becoming seriously too small?

Why is there a sudden problem?
It sounds like "regular buyer's remorse/panic", but not based upon any new and meaningful information.
It's hard not to have second thoughts with a major purchase, and things don't get more major than housing.

Unless something truly significant has changed... enjoy your new house!
:happy

Many buyers feel this way, including for a while after the close.
Ask almost all of us again a year or several later, and we remain very happy campers indeed!

(We bid 'high" for current house, 5% over asking because DH had been looking and looking and finally, *this* was *the* house. 19 years later, still thrilled with it, and soooo happy we got it. Sure, in 2008-2010/etc., it was a bit scary, although I don't think we were ever actually upside down. But now? The house has almost doubled in price. We NEVER expected anything like that, and we still do NOT include much home equity in our calculations, and certainly not enough to move any scale. It was housing, happy housing, not an investment. Even if we don't make a cent, no problem. That wasn't the goal at any point.)

RM
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bltn
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Re: Should I Give Up My Earnest Money

Post by bltn »

You got a 1 m dollar appraisal on a house listed for 850k. Do you really think a second appraisal with no knowledge of the first will be for the same amount? Do you think that the tax records about square footage will always correspond with the appraisal or future appraisals will agree with the first about the sq footage? Appraisals are not always that reliable, particularly in a changing market.
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RelaxNoMore
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Re: Should I Give Up My Earnest Money

Post by RelaxNoMore »

Archimedes wrote: Sun May 16, 2021 3:29 pm The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
Typically this could be the case. Unfortunately, we waived contingencies to win. We consulted a attorney last week, and he told us that it would be extremely difficult to make argument and get Earnest money back given our terms. Bad situation.
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TimeRunner
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Re: Should I Give Up My Earnest Money

Post by TimeRunner »

Buy it, fix it up, and if you don't like it still, flip it next Spring. Earn your money back. :beer
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supalong52
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Re: Should I Give Up My Earnest Money

Post by supalong52 »

Appraisals are backwards looking. An 80k difference is nothing. It's 8%. If the stock market dropped 8% would you sell everything? C'mon be rational!
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serbeer
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Re: Should I Give Up My Earnest Money

Post by serbeer »

Big Dog wrote: Sun May 16, 2021 3:42 pm
nitpick wrote: Sun May 16, 2021 3:31 pm
Archimedes wrote: Sun May 16, 2021 3:29 pm The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
This is the best advice! Lawyer up if needed!
Agree with both of these posts.

OTOH, the appraisal came in $80k less than you expected so you are willing to forfeit $50k? That math don't make sense to me. The poor school district and other concerns you have posted are much bigger issues --- Real Estate is all about Location, Location, Location -- as those things can't be fixed.

I'd try to negotiate down the earnest money based on the square footage being misrepresented. But then a local RE attorney might say that 10% is close enuf so its not actionable.
+1
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RelaxNoMore
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Re: Should I Give Up My Earnest Money

Post by RelaxNoMore »

New Providence wrote: Sun May 16, 2021 4:25 pm Cold feet is understandable, but I think that the purchase can still go forward. The appraisal is just one of many factors and does not take into consideration current market conditions.

Continue with the purchase, make it work. You will come out OK if you stay in the house for many years. That will be the key factor at the end of the day.

Good luck.
I agree on the long term growth in housing market. Considering the cost on this house (overpaid + renovation cost), do you think we could be better off to find a different house instead?
Wricha
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Re: Should I Give Up My Earnest Money

Post by Wricha »

Archimedes wrote: Sun May 16, 2021 3:29 pm The fact that the listed square footage and the actual square footage is discrepant could offer you a reason to back out of the deal and get your earnest money back. These erroneous details could constitute a material difference that factored in your decision. Again, this type of error may allow you to get out of the deal and get your earnest money back. Talk to your attorney immediately!
This was my initial thought. My second thought. Your house is the most expensive one in the neighborhood until the next house sells. The appraisal is only for the bank to check it’s boxes. A house is to live in and almost always is not the best investment you will ever make. I will bite and pretend the appraisal is meaningful $80k -$50k =$30k. I am not blowing up a million dollar deal over $30k if you like the house and meets your needs I’d move forward happily. Almost everyone has some level of buyers remorse.
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galawdawg
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Re: Should I Give Up My Earnest Money

Post by galawdawg »

IANYL but some of the advice you are getting here regarding your ability to back out of the deal and receive your earnest money back based upon an alleged "misrepresentation" of or "deception" concerning the square footage is seriously flawed.

You indicate that the square footage shown on the appraisal is lower than the square footage shown in the county tax records. That is not at all unusual. Here are a few of the reasons for such variances:

1. The county tax assessor may include areas for taxation purposes in the square footage that is not included in an appraisal, such as an enclosed patio or porch, a garage, a detached structure (even if connected by a breezeway), or other such area.
2. An appraisal will not include square footage of any room, such as a finished attic, where less than 50% of the ceiling is less than seven feet of height. The county tax office may include that for taxation purposes.
3. On an appraisal, any portion of the living area which would have a wall height of less than five feet is not included in square footage. So in a room with sloping ceilings, there can be significant difference in what the appraisal includes in square footage and the actual "footprint" of that space. The county tax assessment may include the entire footprint in square footage.

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Therefore it is possible, and indeed even likely, that the square footage shown in the county records is accurate as to the actual footprint of the house. Based upon what I have read in your posts, I agree with the attorney with whom you consulted...you don't have a case and don't have any viable legal options to "get out" of the contract you signed. The bottom line is you have buyer's remorse. That being said, it would seem to me that your realistic options are:

1. Purchase the house as you agreed to do when you entered into the contract, or
2. Do not purchase the house and instead attempt to negotiate a settlement with the seller to receive some portion of your earnest money back.

If you don't purchase the house and the seller won't agree to refund a portion of your earnest money, then you may just need to accept the fact that you made a rash and unwise decision to waive all contingencies in a contract for the purchase of a $1 million house. And the consequence of such a decision, when combined with a subsequent decision to breach that contract, is a payment of $50,000 to the seller. That is the bargain you struck. Sometimes we made decisions in life that we later regret. If the only thing we lose as a result is some money....it isn't the end of the world. After all, you'll make more!

Good luck in whatever you decide.
chipperd
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Re: Should I Give Up My Earnest Money

Post by chipperd »

OP: Not sure you overpaid in this market and I bet your appraiser isn't 100% confident on his/her number on your potential house either. As others have mentioned, appraisals lag the market as they weigh heavily on homes similar to your potential home that have sold in the past. Often the distant past relative to how quickly the market moves these days. I wouldn't put much weight on an appraisal in a hot market.
I agree with other the appraisal isn't the issue here, although it may have reminded you that this potential house isn't perfect nor is it in the perfect location for your future needs. But no house is. It's all pros and cons and the market you describe, it seems, more pros need to be sacrificed and more cons need to be accepted.
As to the earnest $, it seems it's worth paying a real-estate attorney in your area and hourly fee to consult about your options.
Ethics are another, very personal issue all together.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
Arabesque
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Re: Should I Give Up My Earnest Money

Post by Arabesque »

I understand the desire to move fast in a hot market. I am feeling it myself, and I have owned 3 apartment buildings and 4 single family houses over my life, all bought in down markets.

I think you should sit out this market. You own a 1000 sq feet house. A family with a small child or two can live well in that space. Once you have children getting up towards school age, then the pressure is on for more space and better schools. A lot can happen between planning a family and the actual children starting school.
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sunny_socal
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Re: Should I Give Up My Earnest Money

Post by sunny_socal »

You made your bed - now sleep in it.

I'd go through with the deal. The "appraisal" is close enough, you could probably get a higher number if you did another one. There's a reason that realtors usually pick a company that they *know* will bring in the desired value (wink wink.)

OTOH some buyers pulled this exact move on us when we were selling a house. We just gave their bogus "earnest money" back and took the next offer from the pile. Not worth the trouble to deal with flaky buyers.
Olemiss540
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Re: Should I Give Up My Earnest Money

Post by Olemiss540 »

I would go through with the purchase and then sell your current townhouse. This is a HORRID time to rent when you can get 1M plus for a townhome IMO. Liquidate your current place which basically covers the new one and give you PLENTY of flexibility to reno.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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