Expert: Todd C. Menard - 8/4/2009

Question
QUESTION: Todd,
I am looking for some neutral advice about a home purchase my wife and I are attempting in Maricopa, AZ.

We made a bid on a house listed at 178K....we bid 185K at the advice of our agent who said there were multiple bidders so give them your best. We won the bid.

We now get to one week from closing and the appraisal came in at 155K!!
Our lender said no deal, they would demand we pay an additional 30K on top of the 20% down we already said we were paying.

Our agent submitted an addendum to reduce and we are now waiting to hear back from them.

My questions to you are, would it seem unethical of my agent to suggest we get a new lender, new appraisal just to increase the appraisal to near 185K? why would I want a new appraisal at 175K so I can overpay?

Also, the bank that owns the house is claiming they had comps just a couple months ago at that 180 area to justify it. But this seems illogical given the overall market and that recent sales prove 155K is where the market is. Are we to believe just back in March/April/May the same house was selling at 180 and now they are back down to 155?

Lastly, would my assesment that its very possible this bank owned people are playing a game with the price trying to squeeze an extra 20-30K out of someone to justify their past losses on this property. Its now been empty for almost 10 months!
Logic would say, a cash buyer wont pay more than comps and a qualified buyer like me cant get a loan at their inflated number unless they have lots of cash. So why is a perfectly clean ready to move in house empty for almost a year?

Could you comment on any of this being in the business and not involved in this. Because I am starting not to trust my agent and not trusting the bank either. I am feeling like they all wanted to push the price up and cash a check while lying about the comps in the area at my expense.

Thanks

ANSWER: Hello Rich - It is not reasonable that a property would appraise for $180k in March and today only appraise at $155k. The median sales price has actually increased $20,000 in the last three months as reported by Arizona Regional Multiple Listing System. The lender has no win by asking you to increase your down payment other than to arrive at the required Loan-to-value (LTV) required by the guideline of the loan you are attempting to qualify for. Your agents recommendation to obtain a new lending source thus requiring a new appraisal is not in itself immoral, unethical or illegal based on your statements above. If another lender will loan more money on the property as a result of their appraisers valuation is totally up to the new lender and the new appraisal. A buyer should never pay more than the appraised value unless they understand the difference is purely blue sky (overpayment based on a specific reason... goodwill, location, amenities, etc). To comment on the reason the property has been for sale so long would require additional information, providing condition or location is not the issue. The Seller (bank) is typically not playing games although remember the listing agent is working on behalf of the seller. The only area that seems interesting in your explanation is the time it took your lender to get your loan approval and appraisal. In todays market a buyer broker should not recommend that their buyer place an offer on a property until the buyer is approved with stipulations. If the loan originator does a fair amount of loans in this price range they usually have a keen understanding of what their wholesale lines of credit are looking for. Many times, more than not, there can be a phone approval with the underwriter to the point of needing a property address to perform greater diligence on the loan. This means your agent has 'packaged' you in such a way that you are in competition with the ALL CASH buyer, and in many times, are a better candidate since the cash sale requires verification of funds as well. - I hope this has answered your questions and assisted you in evaluating your current and future position, and that of your agent and loan officer. Please reply if you need any additional assistance. - Todd

---------- FOLLOW-UP ----------

QUESTION: Todd, one follow up if I may.....if the bank is not playing games, why are they not listing this property for the true appraised value of the property? They told us they had 2 comps in the 180 area when they listed which must be a lie.
At the same time we are trying to buy, we are also trying to sell. And we are running into the issue where, while the market may say my house is worth 150K, the appraisals are saying no way, maybe 140K tops. So, in a sense, the comps and appraisals will dictating my sales price.....Yet, in my purchase, the bank is ignoring the comps in the area of 155K and they keep trying to sell this house at 25-30K more!
It just seems unfair and possibly illegal to fabricate an appraisal when the comps dont exist.

Rich  

Answer
Hi Rich - Fabrication of a false value falls under "Truth in Lending" laws. As a seller or a buyer the strength of your representation will determine your interpretation of the sale acquisition fairness. Properly represented you should feel the system is working on your behalf in both transactions. Listing agents tend to overemphasize the interest in a property to entice desire. The lender is in search of the highest and best offer. The lender cannot ignore the comps but certainly they can play the negotiation game. On another note... if you cannot obtain the finance terms that you described on the contract page 1, Page 2, and the LSR then even if you are approved you can still submit an 'unfulfilled loan contingency' form and state you are unable to obtain the loan as specified in the contract. You would be entitled to the return of your earnest money as well. I hope this helps.... Todd