As I shake off dealing with a particularly insidious brand of liar, let’s talk the difference between opinions and facts and have some fun with the appraisal contingency as written in the Arizona Association of REALTORS Residential Resale Purchase Contract.
This one’s inspired by a recent post on Trulia Voices where a buyer wants to file a grievance against the listing agent. As we’re told, the home is listed at $288,000, sells at $280,000 and the appraisal came in at $250,000. Apparently this home had been under contract once before and fallen through and – here’s the alleged rub – the listing agent didn’t say why, leading the buyer to believe the home hadn’t appraised previously. This, our buyer decided, is grievance worthy presumably because an appraisal is a “material fact.”
Except … it’s not. By definition, an appraisal is an opinion of value of a property at a given moment in time. No more, no less. Ask three appraisers the value of a property in a vacuum, without a purchase contract to satisfy, and you’ll get four different answers. So let’s set aside the only conceivable thing the buyer could hold against the listing agent, that they didn’t say the home didn’t appraise previously because, legally, the listing agent doesn’t have to say a word because it’s not a material fact.
Moving on … the appraisal contingency in the AAR contract is pretty simple. If a home doesn’t appraise for the agreed upon price, the buyer has the option of canceling the contract or bringing in the difference in cash to satisfy the loan because the buyer’s loan value will be based on the lesser of sales price or appraised value. (Keep in mind, this only applies to financed purchases; cash sales skip this entire section of the contract.)
So, in this instance, the appraisal didn’t come in. The buyers do not elect to cancel and aren’t willing to bring in the $38,000 so they go for the most common option, though it’s not in the contract, negotiation. They say they’ll bring in an extra $8,000. The sellers, despite the appraisal, still think their home is worth more than the $258,000 and say no. Buyers cancel because they’re not going to bring all the money in and then vent that they lost their inspection money when they elected to cancel.
What has me curious is why this possibility came as a surprise to the buyers, or if it really did? When I’m writing a contract with a buyer, I go through this paragraph and make it clear that if the home doesn’t appraise there aren’t going to be complications. Maybe their agent didn’t. Maybe their agent did and they just weren’t listening. None of us know.
Here’s the key component to all this – if a home doesn’t appraise, the onus is on the buyer and not the seller. The seller is under no obligation whatsoever to adjust the negotiated sales price. They performed their end of the bargain, negotiated in good faith, and that’s it. Whether the lender agrees with that sales price and is willing to give the loan is the buyers’ problem – not the sellers.
At the end of the day, the buyer is the one that canceled the contract. Inspection money is part of the cost of doing business when you’re buying a home. You’re not required to get inspections, it’s just incredibly highly recommended. But they’re for the buyers’ benefit and are a buyers’ expense, plain and simple.
Maybe there’s an attorney out there who will disagree. But a grievance against the listing agent? I’m just not seeing it from where I sit.