Expert: Todd C. Menard - 5/26/2008

Question
QUESTION: We are FSBO's that signed a P&S with the contingency that the appraisal price of our home was "Subject to property appraised at sale price or higher, or this contract will be null and void and all deposits will be returned to buyer, or sale price will be renegotiated." The buyer verbally said that the banks appraisal was $30 less than sale price and refused to renegotiate or accept our offer of meeting the banks appraisal. We asked for a copy of the appraisal for proof before we returned the Escrow Deposit. She has refused to provide written proof. Is she legally required to provide written proof if we ask and is she in default if she doesn't?

ANSWER: Hello Robert - "Required legally" is required only by the terminology of the contract you used. I would imagine there are cancellation provisions of the contract including such wording and indicating that the cancellation is either unilateral (buyers cancels as sole election) or mutual (both buyer and seller must mutually sign to cancel)... and whether in either of these situations the notice of cancellation (null and void) must be in writing, but in situations of FSBO and no REALTOR then there is no standardized contract. Also, if an escrow company was used, the escrow company would require a copy of the appraisal providing written support of their acclaim. It is impossible to introduce new contract requirements at this point so it depends on the wording of the contract you already have signed. It is unreasonable to imagine that an appraiser would actually provide an opinion of value $30 dollars short of the sale price since the appraiser is commonly provided a copy of the offer/contract and is selected by the lender not the buyer... unless their is other circumstances like... the buyer is a loan originator for this company, the buyer is an appraiser, the buyer is a licensed real estate agent, etc. Finally, I would recommend talking to a real estate attorney, not just any attorney. They will usually discuss this with you for free during an initial consultation. I hope this helps. Let me know if I can offer any additional information. - Todd

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QUESTION: CLARIFICATION: Sorry, I made a typo error of $30 for $30,000 - and yes, the Escrow Agency is the Buyer's Agent's Broker's firm. We have requested the copy from them also and have not gotten it.

ANSWER: Hello Robert - Two Parts - first, in many parts of the country the real estate markets inventory is has leveled off and the decline in pricing is expected to be over with the exception of areas like Arizona and Fort Myers, FL which are still dealing with larger inventory levels and significant competition from bank owned and short-sale properties. The question is either a)what lead you to believe your home was worth $30,000 more, and b) what would stigmatize your property such that the appraiser would be compelled to offer an opinion of value $30,000 below your anticipated value? I am not challenging anything here, only stating the obvious perspectives of both sides. The buyer still should provide you with a copy of the appraisal just as an honest and fair participant supporting their position to cancel and be reimbursed the earnest money. It does not cost the buyer anything to provide this to you. It is already paid for by the buyer. Second, As far as the escrow company being owned by the buyer broker's firm, there should be autonomy clearly demonstrated between the two, and one would imagine the owner would be concerned with the reputation and integrity of both firms. Clearly the real estate agency has a duty to represent their client (the buyer) but the escrow agency is obligated to be neutral. So they should treat each party fairly and equally. If this is not the case you may want to investigate the governing agency... in AZ it is the State Department of Insurance which regulates title companies and the department of financial institutions (banking) that regulates escrow companies. But truthfully, it sounds like you should consider trying to contact the buyers broker and respectfully request a copy of the appraisal. I would imagine the broker would be willing to provide the appraisal or would recommend to their client that there is no foul in doing so. Then, set your sights on a more qualified buyer and see if you can get a better appraisal from another lender. It is different than the old days when an appraisal stuck with a property for six months. Today, with the exception of a government loan (FHA/VA) you should be able to find another buyer who seeks financing from another lender who orders an appraisal from another appraisal firm and as the industry goes, you may find you get the $30,000. Or, so much closer you might be willing to meet them part way (discount your home a little) and get on with your new home. Hope this helped... Thank you for updating me and clarifying the appraisal amount. It made a difference. - Todd

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QUESTION: Sorry, hit the wrong key and sent it before finishing. You asked; a)what lead you to believe your home was worth $30,000 more, and b) what would stigmatize your property such that the appraiser would be compelled to offer an opinion of value $30,000 below your anticipated value?

a)We based our price on 3 things; 1- p.s.f. in comparison to two homes that sold on the same day on 9/20/07 that are one mile apart, both are 55+ communities, both were built during the same year and yet had distinctly different features and amenities. Yet the one that was in my neighborhood and closest to the quality of ours sold for $12 p.s.f. less but was far superior in upgrades and square footage. That was a distress sale due to forced job relocation or loose the job. 2- The present economy. It was listed 2 years ago for $40,000 more than today. 3- What we paid for the house and the $12,000 we put into it within the last year. With that total in mind we priced it $4,000 less. b) The stigma in this neighborhood, we believe is that when this community was built 4-5 years ago we were the only ones that included the purchased upgrades with the selling price of the home that got recorded at the assessors office. Others thought that by doing so, they would save on taxes. Also, the builder built 3 rentals over the community center and put only the very basics in them - no upgrades. He dumped them in Feb for basically his materials cost. This too is what the bank appraisal considered. We tried to explain this to both the bank appraiser and the buyer but the buyer was determined to pay no more than the appraised price regardless of the unusual circumstances. But that deal is dead now. Our biggest concern is whether or not she simply give us a figure verbally without proving the banks appraisal was what she says it was. We don't know if she is lying or not without proof. We don't feel as though she should be able to back out of a deal without written proof from the bank - otherwise, sellers would be the constant victims of deception.There is a clause that says; "PRIOR STATEMENTS: Any verbal representation, statements and agreements are not valid unless contained herein. This Agreement completely expresses the obligations of the parties."

Answer
Robert - It is difficult to determine the reality without documentation. The transaction is usually contingent on the appraisal. An experienced real estate agent would write additional terms in the additional terms section requesting a copy of the appraisal if the appraisal is lower than the SP. So sans the appraisal copy we will never know. Next thought, if an appraiser indicates up front that they are not going to do the appraisal because they think the price is $30,000 off then that is an acceptable practice... But usually the real estate agent for the seller asks the buyers agent to see if the lender will get another appraiser and the buyer's lender doesn't want the deal to cancel either. We are experiencing a similar issue in Sun Lakes (55+)Chandler, AZ where an appraiser did the same thing. I would recommend talking to a respected real estate agent in your area and request the name of an appraiser that could do a preliminary review before doing the actual appraisal. Then, if the appraiser says he can COMP the property at your value you know on the next transaction you can say you have a recent appraisal as a marketing tool, and you have a rather good position that the original appraiser was less than skillful in their profession. I too would continue to pressure the escrow officer to hold the release of the earnest money subject to a copy of the appraisal. If you state to the unbiased middle person (escrow company) that you have a problem with the release of the earnest without the copy of the appraisal the title company will usually inquire with their legal counsel to see what they should do. It is at least a powerplay if nothing else. Hope this helps. - Todd