Need help wording a special stipulation

I have a lender that will loan me up to 70% of the ARV of a property. That 70% is only applicable to the Purchase price and rehab costs. My concern is that if i estimate the ARV over what the bank says it's worth I need to be able to walk away w/o losing my earnest money. So me and my agent have been trying to find a way to word this into the special stipulations, but were struggling to do so.
Something like
"Buyers Lender must appraise property for X amount of dollars"
Any ideas would help.

Bill Gulley

Real Estate Investor · Springfield, Missouri

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Nov 13 '10, 10:07 PM

Do you mean to say that your deal is subject to a 70% loan of the purchase and cost of repairs? If it is, just say so, if you don't get the loan, you're off the hook!

George Ramsay

Real Estate Investor · Georgia

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Nov 14 '10, 09:56 AM

The loan is not subject to anything other then the bank's appraisal of the property. For instance say that they think the ARV is 160,000 and will loan me 112,00. Now let's say I have CMA's that put the property at 170,000 That means i have a loan for 119,000. That's a $7,000 difference in the level of rehab i can do, and although i might be able to shave some of that off during the project, it's going to lessen the property and ultimately my profits, hence the need to be able to walk away, if my CMA's and my lender's appraisal are not on the same page.
Also i'm primarily submitting offers on REO's so adding a financing contingency is not an option.

Thanks for the feedback though

Bill Gulley

Real Estate Investor · Springfield, Missouri

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Nov 14 '10, 09:24 PM

I think I get it, you're saying that if you find the costs of rehab to be more than the bank's appraised value, you want to walk on the deal....right?

If this is on an REO offer, I bet it's not accepted if you put such a contingency in the contract. Basically, what you are saying is that "hey, I think I want to buy this property to flip, but I don't know what it will cost me nor will I know what it's worth until I see your appraisal" When they see that you can't do your due dilligence, they may not want to look closely at your offer...just an observation from experience. The fact that you are an investor and that you are financing your deal already puts you behind the 8 ball so to speak with an REO, IMO.

Another aspect is that you want the bank to basically loan off your CMA rather than the apprisal they order from their approved appriaser list and through the hoops that must jump through to obtain an "independent" appraisal.....won't happen in your life time!

No one will get a lender to loan off an appraisal or assement obtained and paid for by the borrower.

If you need an out, make your agreement with your lender and make your offer subject to financing. If you are telling your lender that you need X dollars to make the deal work, and apply for that amount and it does not appraise out to support that loan amount, you won't get the loan. Good luck!

I suggest you belly up and do the leg work and if you can't get access, then reflect that in your offer. Bnaks don't assume buyer's risks.

George Ramsay

Real Estate Investor · Georgia

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Nov 15 '10, 10:32 AM

I passed along your post to my agent and the first words out her mouth were "I couldn't agree more, your weakening your position"
And just to clarify I've had access to the property and know exactly what the numbers are and what the property would sell for, but you just never know with appraisers some times. And my lender has kind of redone their appraisal's a bit so i'm not exactly sure what to expect from them this time around.

But appreciate the response, it's been very helpful

Derek W

Real Estate Investor · Canyon Lake, California

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Nov 17 '10, 02:32 PM

I always meet my apprasier at the property at the time of appraisal. I make sure I have a very complete package for them with all of the comps and justifications of adjustments for all comps along with a list of "capital improvement" I will make to the proeprty to reach the ARV value. I work very hard to make sure that my appraisal comes in where I need to. Study your comps and know that neighborhood better than anyone else. Explain to the appraiser why certain comps are outside socia-economic boundaries, are on the "wrong" side of a pysical boundary, etc. and why certain comps should be used. If you have solid comps to prove your point, and documentaion to support it, it will be hard to argue with. Good luck!