Is this realtor lying to me?

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SamGamgee
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Is this realtor lying to me?

Post by SamGamgee »

We are selling our hobbit-hole home. Because of a lack of adequate comps, it is likely that an appraisal would come in at or below the amount the buyer is offering. Let's assume that the true market value is higher.

The buyer's agent tells me that if the appraisal comes in at less than the contract price, the buyer will not be able to obtain financing. This is in spite of the fact that the buyer's downpayment is almost 50% of the contract price. This seems absurd to me. Shouldn't the bank just be comparing the size of the loan to the appraisal? The realtor's claim is that ONLY a cash buyer could get around this problem.

Is this realtor lying to me to prevent me from negotiating for a higher price?

(This is in the shire NJ.)
livesoft
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Re: Is this realtor lying to me?

Post by livesoft »

I tend to agree with the realtor on this one, but I could be lying to you.

Why don't you call up a mortgage broker or bank yourself and ask?
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maroon
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Re: Is this realtor lying to me?

Post by maroon »

A quick Google search suggests your realtor is not outright lying to you.
There are solutions for low appraisals, though, such as paying the difference in cash (which is possibly what your realtor is saying).
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surfer1
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Re: Is this realtor lying to me?

Post by surfer1 »

I don't think the realtor is lying. Banks tend to deny loans on houses where the offer is higher than the appraised value.

What will end up happening is, if the appraisal comes in lower than the offer, the seller will either have to lower the price to the appraised value (so the loan will go through) or the buyer will have to come up with cash to make up the difference. Buyers tend to balk at the latter, as they either don't have the cash or they feel they're apparently paying too much.

Something to keep in mind, if this is an FHA loan, the appraisal sticks with the house for 4 months and will be automatically re-used for future offers during that time.
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midareff
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Re: Is this realtor lying to me?

Post by midareff »

The appraisal will be used as the loan basis. Different loans require different down payments, ranges I know about are 95%, 80% and 70% for residential and condo. An appraisal requirement written into a purchase contract is pretty common when a mortgage will be obtained. With 50% cash down I can't imagine the appraisal being a problem.

With all respect to the true professionals in the business ..... a realtor gets paid by closing a deal, just like a used car salesman gets paid by selling a car and a travel agent by booking a trip. In each field there are astute professionals and others who take or say whatever they feel may be a shortcut to getting paid.
Boglegrappler
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Re: Is this realtor lying to me?

Post by Boglegrappler »

I think homes in NJ are assessed at 70% of "fair market value". What does the town/county assessor think the fair market value is/was at the time of the last assessment?

I agree with you on the logic of the mortgage, but I'm not sure it will apply in real life. Lenders are very difficult to deal with in the current regulatory environment.

The buyers agent isn't working for you. Their job is to lie to you to get the lowest price for their client. One question is why did the buyer bid that amount if his agent was telling him that no mortgage would likely be available.

FInally, even though some areas are seeing competition for homes, I think most of the northeastern/mid-atlantic areas aren't in that category. I'd be cautious about how hard I bargained with a 50% downpayment buyer in a market that doesn't have a clear direction. It depends on your personal circumstances, of course, but it's also your risk if you run-off the only buyer you've seen in the first six months on the market (speaking hypothetically).
spth
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Re: Is this realtor lying to me?

Post by spth »

Our home which we sold in 2012 appraised for less than the "contract" price. The buyers' lender used the appraised value rather than the "contract" purchase price to determine the conditions of the loan. I assume they received funding up to 80% of the appraised value. If your buyer has extra cash to make up the difference between the appraised value and the "contract" price, then I assume it will work. In our case, we lowered our purchase price to the appraised value.
Last edited by spth on Thu Jul 17, 2014 9:45 am, edited 1 time in total.
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SamGamgee
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Re: Is this realtor lying to me?

Post by SamGamgee »

maroon wrote:A quick Google search suggests your realtor is not outright lying to you.
There are solutions for low appraisals, though, such as paying the difference in cash (which is possibly what your realtor is saying).
What does this mean? The buyer pays the bank the difference? They buyer pays me the difference?
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SamGamgee
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Re: Is this realtor lying to me?

Post by SamGamgee »

livesoft wrote:I tend to agree with the realtor on this one, but I could be lying to you.

Why don't you call up a mortgage broker or bank yourself and ask?
Because I have a whole internet of well-informed individuals at my finger tips, whereas a single broker who happens to pick up the phone might be ignorant or confused.
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Re: Is this realtor lying to me?

Post by niceguy7376 »

SamGamgee wrote:
maroon wrote:A quick Google search suggests your realtor is not outright lying to you.
There are solutions for low appraisals, though, such as paying the difference in cash (which is possibly what your realtor is saying).
What does this mean? The buyer pays the bank the difference? They buyer pays me the difference?
For example, you listed the home at 275K. Say the appraisal is for 250K and bank loans 80% of it which is 200K. If the buyer brings 75K in cash to you, then bank will brings 200K and you get your price.
anil686
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Re: Is this realtor lying to me?

Post by anil686 »

SamGamgee wrote:
maroon wrote:A quick Google search suggests your realtor is not outright lying to you.
There are solutions for low appraisals, though, such as paying the difference in cash (which is possibly what your realtor is saying).
What does this mean? The buyer pays the bank the difference? They buyer pays me the difference?
Hi Sam,

Just bought a house in Texas where prices are going for about 3-5% over list (DFW area). We have seen this situation - just happened with a house we put an offer on but did not get where the list price was 7% under the contract price agreed to. Our realtor explained to us (in case we got into this situation as buyers) that the bank would agree to finance 80% of the appraised price - so for round numbers - if the contract price was $100 and the appraised price was $90 - the bank would lend $72 and the buyer would need to bring $28 to closing. In summary - you get the contract price if the buyers want to proceed at settlement. However, most states (including Texas) gives the buyers an out if the appraisal does not meet the contract price. We have seen that used somewhat in our subdivision this year (I don't know why - maybe people feel that they are overpaying - but my thought is if you are making an offer over list - you should be aware you may be overpaying)

So, I guess, in summary - you get the contract price if the buyer wants to go down that road. If they feel they are overpaying - they can walk away. In our neighborhood - we have typically seen people lower their price to the appraised value as to not lose the sale - just offering my experience recently.

Thanks for reading - Anil
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SamGamgee
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Re: Is this realtor lying to me?

Post by SamGamgee »

Thanks niceguy and anil. If what you are telling me is true in NJ, then we'll be fine. Appraisal may come in a couple percent low, whereas the buyer is only financing about 50% of the contract price, so they will be well under 80% regardless.
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ResearchMed
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Re: Is this realtor lying to me?

Post by ResearchMed »

SamGamgee wrote:
maroon wrote:A quick Google search suggests your realtor is not outright lying to you.
There are solutions for low appraisals, though, such as paying the difference in cash (which is possibly what your realtor is saying).
What does this mean? The buyer pays the bank the difference? They buyer pays me the difference?
Good question. How is the large extra down payment not "paying the difference"?

We financed several homes in the past decade or so (and several more over the previous decades), but not for a few years, so our experience isn't in the immediate past.

But since when is the "LTV" or Loan To Value not what is used, in terms of the percent allowed for the mortgage, such as 80%, 95%, 75%, for down payments of 20%, 5%, or 25%, respectively?
If the buyer is putting down more than the difference between 100% and the required "value", isn't that precisely having the buyer "pay more", and doesn't this take care of it?

Consider the extreme: Someone wants a mortgage of 200k for a $1m property; they are planning to put $800k down.
If the appraisal comes in at 900k, is a lender going to decline to give the mortgage after all?
The bank would then be lending 200k with a DP of 700k "in their calculations". That loan is well secured, assuming an accurate/reasonable appraisal.

Maybe things have changed, or things in this area are "different", but it's always been the "LTV" that matters, with banks being VERY conservative about what that value is, so they won't accept what appears to be an appraisal that is "too high" (not since about 2007, anyway!).

RM
Luke Duke
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Re: Is this realtor lying to me?

Post by Luke Duke »

midareff wrote:The appraisal will be used as the loan basis. Different loans require different down payments, ranges I know about are 95%, 80% and 70% for residential and condo. An appraisal requirement written into a purchase contract is pretty common when a mortgage will be obtained. With 50% cash down I can't imagine the appraisal being a problem.
My thoughts as well.

Let's assume:
the bank requires an 80% LTV (loan to value) to provide financing
the house appraises for $100K
the contract is for $120K
the buyers have a $60K downpayment

The bank uses the appraisal to establish value ($100K). They will lend up to 80% of that value to the sellers, assuming that they have sufficient credit. 0.8($100K) = $80K
Since $60K + $80K > $120K there should be no issues.
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midareff
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Re: Is this realtor lying to me?

Post by midareff »

Luke Duke wrote:
midareff wrote:The appraisal will be used as the loan basis. Different loans require different down payments, ranges I know about are 95%, 80% and 70% for residential and condo. An appraisal requirement written into a purchase contract is pretty common when a mortgage will be obtained. With 50% cash down I can't imagine the appraisal being a problem.
My thoughts as well.

Let's assume:
the bank requires an 80% LTV (loan to value) to provide financing
the house appraises for $100K
the contract is for $120K
the buyers have a $60K downpayment

The bank uses the appraisal to establish value ($100K). They will lend up to 80% of that value to the sellers, assuming that they have sufficient credit. 0.8($100K) = $80K
Since $60K + $80K > $120K there should be no issues.

Sent an email to my mortgage person at PenFed.....

"That is correct. You could bring the difference of the sales price and appraised value to the closing table, plus your 20 % to avoid PMI."

I restate, with 50% of contract down unless the appraiser is on another planet there should be no issues at all.
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Meg77
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Re: Is this realtor lying to me?

Post by Meg77 »

The realtor may not be lying to you, but he or she also may not know much about financing options for the client. The clients themselves may not even know much about what they can borrow. The bottom line is that you are right. If the client has 50% to put down, then a low appraisal is not going to change their ability to get a loan.

I'm a banker who does a lot of mortgage lending, and I can tell you that the vast majority of all lenders will finance at least 80% of the appraised value or the purchase price - whichever is lower. Appraisals come in lower than the contract price all the time, especially in some areas where market values have risen faster than the comps can catch up. When that happens the lender is usually going to tell the buyer they will have to lower their loan amount and can only lend 80% of the appraised value; this is because most people are trying to borrow the most possible. In those cases the buyer can either 1) try to renegotiate the contract down to the appraised value, or 2) they can put down a bigger down payment to cover the 20% of the appraisal PLUS the difference between the appraisal and the purchase price, or 3) they can walk away and buy a different house.

In this case though the lender wouldn't have to lower their loan amount if the buyer really is planning to put down 50%. The bank could simply increase their advance rate from 50% to 60% or 70% or whatever (which they would happily do since mortgage bankers are paid more on bigger loans). In most cases at today's interest rates, a larger loan will barely affect the payment and is unlikely to result in the borrower being disqualified (unless the loan is very large and the buyer is already on the verge of not being able to show enough income to pay the monthly payment).

In short, the only times a low appraisal can wreck a deal is when the buyer only has access to 20% of the purchase price and the seller won't lower the price. In that case when the lender says they can only lend 80% of the appraised value (or, say 70% of the contract price), the buyer is forced to walk because they can't come up with that additional 10%.

Although be aware that the contract may say they plan to put down 50% in cash, but many times buyers who say they are putting down X amount really borrow more. Borrowers who say they are paying cash even use private lenders sometimes. What the contract says doesn't really matter except it gives them an out in the financing contengency (which rarely comes into play because they can use the inspection or appraisal or any other reason to walk, and financing contingencies almost always run out well before final loan approval anyway).
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HornedToad
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Re: Is this realtor lying to me?

Post by HornedToad »

Is there an appraisal contingency in the contract? That's your fundamental question first outside everything else. My understanding with 50% down, they won't have an issue with financing.
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Re: Is this realtor lying to me?

Post by an_asker »

midareff wrote:
Luke Duke wrote:
midareff wrote:The appraisal will be used as the loan basis. Different loans require different down payments, ranges I know about are 95%, 80% and 70% for residential and condo. An appraisal requirement written into a purchase contract is pretty common when a mortgage will be obtained. With 50% cash down I can't imagine the appraisal being a problem.
My thoughts as well.

Let's assume:
the bank requires an 80% LTV (loan to value) to provide financing
the house appraises for $100K
the contract is for $120K
the buyers have a $60K downpayment

The bank uses the appraisal to establish value ($100K). They will lend up to 80% of that value to the sellers, assuming that they have sufficient credit. 0.8($100K) = $80K
Since $60K + $80K > $120K there should be no issues.
Sent an email to my mortgage person at PenFed.....

"That is correct. You could bring the difference of the sales price and appraised value to the closing table, plus your 20 % to avoid PMI."

I restate, with 50% of contract down unless the appraiser is on another planet there should be no issues at all.
+1 is all I can offer. Unless there is something about different states ...
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Re: Is this realtor lying to me?

Post by gotlucky »

It's far easier and generally takes less time for a broker or agent to sell a property that is under-priced than one that is fairly-priced. They have a strong incentive to sell quickly and headache-free versus making an extra couple bucks on a higher sales price. So I take anything an agent says (or anyone who stands to benefit from a transaction) with a grain of salt.

Have you considered owner financing? If I were getting at least 30% of FMV as a deposit, I'd strongly consider carrying the note if I didn't need the capital and I could pay off any existing mortgages. Carrying a first trust deed (only do a 1st!) is far easier than being a landlord and could be more profitable if you work with the seller. Less upside, yes, but much less risk and hassle. Further, it sounds like this is your principal residence so you are able to sell tax-free; however, if there are tax considerations, there are good reasons to go with an installment sale.
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Re: Is this realtor lying to me?

Post by Greenleaves »

I second what GotLucky is saying above. If you can offer a 1st mortgage with the 50% down and hold the rest, maybe a balloon that can be renewed at your option. Take advantage of any tax benefits from the installment sale,and get your full price.
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Re: Is this realtor lying to me?

Post by grabiner »

anil686 wrote:However, most states (including Texas) gives the buyers an out if the appraisal does not meet the contract price. We have seen that used somewhat in our subdivision this year (I don't know why - maybe people feel that they are overpaying - but my thought is if you are making an offer over list - you should be aware you may be overpaying)
The reason for this clause is to protect the rights of the buyer, as the low appraisal may increase the effective price to more than the buyer can afford or was willing to pay. If a buyer is prepared to put $100K down on a $500K house, and the house appraises for $450K, he may not be able to put $140K down to reduce the loan to 80% of value, nor to afford the payments on a $400K mortgage with the required mortgage insurance with only 11% down. Without this clause (or a contingency on being able to finance the $400K at a given rate), the buyer would be out his deposit if the appraisal came in low.
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SamGamgee
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Re: Is this realtor lying to me?

Post by SamGamgee »

I just want to post some anecdotal evidence to the contrary of most responses: I asked the same question on a different forum, and a couple of people stated that their pre-approval letter explicitly states that the lender will not lend the money if the appraisal comes in lower than the purchase price, regardless of the downpayment. It appears that some lenders are using this language as a new precaution due to the housing crisis.

So it sounds like the realtor is likely correct with respect to the buyer's pre-approval, but I would imagine that not all banks are doing things that way.
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Re: Is this realtor lying to me?

Post by steadyeddy »

That's interesting. I suppose that helps guard the banks against moral hazard where the new buyer has incentive to short sale.

For what it's worth, we put an offer in on a house last year and included language to say we would make up the difference between appraisal and contract price in cash, capped at a certain dollar threshold. The sale didn't end up going through, but both the seller and the bank were fine with the situation.
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Re: Is this realtor lying to me?

Post by mayday23 »

SamGamgee wrote:I just want to post some anecdotal evidence to the contrary of most responses: I asked the same question on a different forum, and a couple of people stated that their pre-approval letter explicitly states that the lender will not lend the money if the appraisal comes in lower than the purchase price, regardless of the downpayment. It appears that some lenders are using this language as a new precaution due to the housing crisis.

So it sounds like the realtor is likely correct with respect to the buyer's pre-approval, but I would imagine that not all banks are doing things that way.
I wonder if this has to do with fraud? I know in Chicago, we had a lot of buyers/sellers that were in kahoots and would pay above fair value, get the loan the buyer go back to their home country and leaving the mortgage company with the loan.
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Ged
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Re: Is this realtor lying to me?

Post by Ged »

Boglegrappler wrote:I think homes in NJ are assessed at 70% of "fair market value". What does the town/county assessor think the fair market value is/was at the time of the last assessment?
It's 100%.

http://www.state.nj.us/treasury/taxatio ... nlpt.shtml
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Re: Is this realtor lying to me?

Post by Boglegrappler »

Thanks. I stand corrected. It used to be 70% years ago. I wonder why they went to 100% (it doesn't make any difference to anyones taxes).
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ClevrChico
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Re: Is this realtor lying to me?

Post by ClevrChico »

Everything my realtor told me turned out to be untrue. :D
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greg24
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Re: Is this realtor lying to me?

Post by greg24 »

Are his lips moving?
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