We have a house we are selling with a realtor. We entered into a contract with a buyer for $151,000 with $1,000 credit back on closing costs with a VA loan. Our appraisal came in at $140,000, which was very disappointing, especially considering we were in a multiple offer situation. :-( At first we agreed to split the difference with the buyer coming up with the cash. He had a chance to talk with his friends over the weekend, and decided he changed his mind and wouldn't pay a penny over the appraised price. We ended up offering him the $140,000 price, but without his $1,000 credit (the realtor also gave back 2% to us, and we really felt we just need to move on with this sale). He is dragging his feet on agreeing to this, which should be a no-brainer in my opinion if he wants the house - so us and realtor believe he must have cooled on the house. Our realtor says we would not get the earnest money in this case if he backs out because we are changing the contract with removing the $1,000 credit. She is probably correct, but do other professionals out there agree with this assessment?
Once a contract is changed it is a counter offer if the counter offer is not accepted the contract is null and void
But how does that apply to the earnest money? And even if I left the credit in, you are still changing the contract by changing the price, aren't you?
Unfortunately the contract has changed therefore the earnest money is refunded back to the buyer. All earnest money is is a good faith check when purchasing a home. It shows sellers that you are serious about the purchase.
If the buyer can not get financing under the original contract, then they get their money back. If you and the buyer don't execute a new contract/addendum, it as if these negotiations never occurred, the original contract is dead. If you Do sign a new contract, then the EM is back in play, on the new terms. At his point you do Not have a revised//new contract.
I agree with the others (DISCLAIMER: I have never seen a Oregon contract or the one you are using)
However with a VA loan I am guessing you signed a form that said "Acceptable to the FHA/VA" which states that if the house does not appraise the buyer can agree to get their money back or go forward at their own expense. I hope you have a timer on your counter offer to force them to either go forward or back out so at least you have some leverage. You could also just sign a release of contract at this point and force their hand. Eitherway it gets you rolling in one direction or the other.
Good Luck and I hope it works out for you
That all makes total sense. I'm getting irritated because he seems to be dragging his feet, which is only holding us up at this point. I think our realtor only left that offer as a verbal offer on his voice mail. I've left a message with her this morning that I want to sign a termination of contract by noon if we haven't heard back.
In my opinion, the buyers would get back the deposit. IF you keep the contract the same, and bring down the price to that of the appraisal, then you should get it, if they back out. Keeping a buyers deposit is a very difficult thing, even if all is on your side.
Have you tried asking the appraiser for an adjustment, based on the multiple offer situation and maybe other comps inthe area? I've had several adjust their assessment when I give the proper documentation.
@Christine Kankowski , that seemed to be what my realtor said on the EM. Yes, she presented the appraiser with comps and the fact that there had been multiple offers. The highest comp hadn't closed yet though, which we don't know if she took into account (it has closed now). Even with the highest appraisal, ours' would still be a higher price per sq ft. It's a very small house at 600 sq ft. Prices have also been generally going up in the area (but not super hot - it's a small town).
Update: We terminated the contract today and split the earnest money. Very relieved to have it behind us so we can move on. Thanks everybody for the input.
Wow! The fact you got half the earnest money is a huge win for you! Congrats on that. I’m not a professional by any standards but I was always under the Impression that the earnest money was yours (the sellers) only IF they backed out by a means that was not mentioned in the contract.
Most contracts have some sort of financing clause that allows the buyer to exit if the bank won’t agree to financing for pretty much any reason, including appraisal. In this scenario, I’m guessing the VA loan wouldn’t go up to the agreed upon price, since the appraisal came in short. Thus allowing the buyer to exit the contract with their EM, only if there was that specific clause in the contract.. and there probably was, but it would probably benefit you to read the contract in the future.
I had a very similar experience about a year ago. Listed for $200k, multiple offers, we accepted an offer for $210k. Buyer had pre-approval letter from a bank, appraisal came in at $210k but the bank wouldn’t finance due to some past history with the buyer. So even though the buyer agreed to the price, had a pre-approval letter from said bank, during final underwriting, bank said actually.. we aren’t going to finance this for you because it puts your monthly payment too high and with your past credit issue, we don’t have faith you’ll pay us back regularly (obviously in a much more professional manner, yes I’m still bitter ha) long story short, we allowed a couple extensions to see if the buyer could get another form of financing, they couldn’t, contract was terminated and they got their EM back because of the clause in the contract stating if they couldn’t get financing, they get it back. Wasted about 2 or so months on the whole thing, to re list as winter was starting and got no more offers. We ended up not selling, ultimately for the better because the market continued to grow.
Can I ask how you were able to split the EM? Did you threaten to take them to court or anything like that? Or did they offer it up? Just curious about it.
@Ben Winchester , very interesting - thanks for your reply. I just took a closer look at the contract. I have seen that financing clause before and haven't liked it - that if buyer can't get financing, earnest money goes back to buyer. Of course, I guess I do like it if I'm the buyer. :-) But it states that the buyer AND property must qualify by lender (property at agreed price), and if not, and we're not able to agree to new terms, then buyer can walk away from contract with EM. That says to me (in my unprofessional opinion), that regardless of us coming 100% down to the appraised value, that he could say he changes his mind, and still get his EM back. Where my realtor came up with something otherwise, I don't know. However, she is the professional and maybe there's something I don't understand to do with Oregon law (?). She told me that I should get the full EM if we offer to come down to that appraised price with no other changes to the contract (which we essentially did because she didn't even get to the credit change part of our offer - she only verbally left a message that we would come down 100% to appraised value - also btw, she is representing both of us!). But I suspect he might have had a leg to stand on if he demanded his EM back in this situation. Instead, realtor told him at that point that we offered to split the EM with him if he wanted out of the contract, which he accepted - we wanted to start with that incentive, as he had been dragging his feet. This is a small town area, and I don't think a lot of buyers would necessarily have the same experience as in the big city. Our realtor is the top producer in this county, so she's no slouch.
Also, since you live in the NW as we do, you gave me some hope now that we are going into the winter. It's nice to possibly see light at the end of the tunnel if we hold on to this place till the Spring. We are thinking of furnishing it and making it into a temporary rental. We are hoping that this might ultimately pay off in either a short or medium term. Any additional thoughts of the Oregon markets? It's very disheartening to have our place held up for months.
@Kathryn Bowden that is interesting that the agent was representing both parties. I have a feeling that’s why the EM split was so easy. If he had his own agent I could see that agent being very strict and saying no. But still a win for you!
As for more insight on the Oregon market.. I can only speculate like the rest of the people. I’ve listened to a lot of real estate professionals saying the next crash is right around the corner, sometime this year and others saying in 5 years. It’s all speculation though. My personal experience with the town I live in (troutdale oregon) is that it has capped. Condos, single family houses, new builds, all have hit there respective caps. Now that could be from the winter and rain, or it could be from the market.. I speculate it’s mainly from the seasonal change but when it comes down to it, I don’t think the market (my market) will continue to increase at the same rate. That’s just my thoughts and observations in my tiny local market though.
I have just been trying to observe patterns of prices and how long properties are on the market at their given price points and there seems to be a pretty clear price range where properties sit for a long time, and where they go pending instantly.
I hate offering advice to strangers that I know nothing about, especially regarding real estate where every market is so different.. but I’m glad I could at least give you some hope with my story. I am extremely grateful our place didn’t sell. We listed at 200k and accepted an offer for $210 at the time (before it fell apart), there is currently an identical place, a stones throw away, that is listed for $259k.. I believe that is priced too high but even more conservative comps make me feel like ours is valued at around $230k.
Anyway, I hope your market holds strong and you can capitalize on your equity when the time is right :)
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