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  • Writer's pictureMoran Properties

"What Ifs?"

While touring homes with clients, we get a lot of “what if” questions. A couple examples of these “what if” questions we receive are…

  • What if inspections reveal something that will cost a lot of money to fix?

  • What if the appraisal comes back lower than the agreed upon sales price?

  • What if I get fired or my pay gets cut throughout this process and I can no longer afford the house?

This month we wanted to touch on some items that protect our buyers from some of these “what ifs” becoming reality. Essentially, there are three major parts of the purchase agreement that PROTECT buyers.

1. Inspections

The purchase agreement we use 99.9% of the time, gives the buyer the opportunity to hold inspections on the house under contract within the first 10 days. At any point in that first 10 days, the buyers may mutually release the purchase agreement and will still be entitled to their good faith deposit. The only money they will be out on is the amount of the inspection, if they chose to hire an inspector.

This inspection period protects buyers from major defects in the house that were not caught in the first showing. Within the first 10 days, the buyers can move forward as it, negotiate the fixes with the sellers, or mutual release the purchase agreement.

2. Appraisal

The appraisal takes place after the inspection period is cleared. The appraisal fee is covered by the buyers as well. The way an appraisal works is, the lender sends out a request for an appraisal on a property. An appraisal company picks up the job and determines if the agreed upon purchase price of the property is a good investment for the bank. Appraisers do extensive research in the market to determine this and typically, it comes back “at value”. At value means the appraiser reports the agreed upon purchase price is a good investment for the bank. Sometimes, it comes in higher than the agreed upon price. If this happens, the buyers receive instant gratification that they got the house for less than appraised value along with a little equity. Lastly, some appraisals come in short of the agreed upon price. This means the bank will only finance the amount of the appraised value. So, if the house is under contract for 200k and it appraises for 190k, the bank can only lend the buyer 190k. If this happens, it is up to the buyer and seller to negotiate the next step. They have a couple options. One option is for the buyer to bring the extra money to close and keep the agreed upon price. Another option is for the seller to lower the agreed upon price to the appraised value. A third option is to meet in the middle, where the buyer brings half of the money necessary to close the deal and the seller compromises and lowers the price a bit. Lastly, if both parties can’t come to terms, they can mutual release the agreement.

This appraisal period protects buyers by allowing them to have a third party, unbiased party come in and evaluate the price of the house. If the appraisal comes back at or above value, all is good! If it comes back low, and they can’t come to terms on a compromise, the buyer can mutual release the purchase agreement and receive their good faith deposit back. At this point in the deal, the buyers would be out the money they paid for inspections and the amount of the appraisal.

3. Financing

If at any point during the transaction the buyers no longer qualify for financing for the house under contract, the purchase agreement will be mutually released. At this point, they will receive their good faith deposit back. Unfortunately, buyer financing falling through happens way too much, but if you choose a lender that does their due diligence and pre approves you with all of the proper documentation and there are no secrets between the buyer and the lender, it should all work out!

We hope you found this information helpful! If you have any questions on the process of buying or selling a home, please reach out and let Moran Properties help you!

Have a fantastic rest of the month and you will hear from us in November!

-Moran Properties Team

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