Who has the barganing power?

[scostell]

I apologize as this is not technically an investing question in the spirit of this forum but I'd like to get opinions anyhow.

We just found out that the condo that my wife and I are suppose to close on next friday will not appraise for the value of the loan we need.  This is not a shocker as we agreed to a price last January (Pre-Construction).  I knew the market was going down a little bit and thought the 80k we bought it for under "Expected Retail Value" because it was Pre-Construction seemed like a good buffer at the time.  Here are the details of the transaction...

Expected Retail Value (by contractor at time of purchase): 560k
Agree Price to purchase at in Jan' 07: 480k
Current Retail Value (based on comp of exact model in another building): 465k
Total invested by my wife and I so far: 20K

So the question is if we go back to the builder and ask to adjust the price, who has the upper hand?  We risk losing 20k I think, they risk losing a sale and the market going down hill fast.

Thanks for any opinions

-Scott

[christopher w]

If the condo had gone up in value and the builder came tyo you and wanted to raise the sales price what would you say?

[aak5454]

it all depends what your contract says.  everything is negotiable in my book.  mostly likely you can opt out of closing and he will keep your $20k, but of course he is left holding title to a condo instead of a wad of cash from the sale.  That give you power to negotiate.  Moreover, if iuts not apprasiing at the agreemd upon price, the next guy he triues to sell it to will likely have the same problem.

[PaulBroni]

Isn't your contract contingent on an appraisal or the financing?

[scostell]

Sorry guys I realized that I forgot to say the broker won't give us a loan because the condo won't appraise for what we agreed to pay back in Jan.  Kind of left that important part out.

Yes, the contract is contingent on getting the loan. 

[PaulBroni]

Then you can get out of your existing contract and just start over.

[Steve Smith]

Just like always, the one who can afford to walk away is the one with bargaining power.

[teamrose]

You definitely have the upper hand. The builder will more than likely bring the price down to the appraised value. Prices are still falling and he/she does not want to lose the sale.

[scostell]

Thanks for the input everyone. 

The Builder is getting another appraisal on the property on Monday.  They are sending out "their guy" so I wouldn't be shocked if it appraised for around the original price. 

Stupid question....The builder seems to be working with Wells Fargo to help people get into loans.  We used our own mortgage broker because we've used them before and have been happy.   My question is....

- Our Mortgage company appraised the property at 455K
- Lets say that the Builder's appraisal comes back at 475k. 
- Our mortgage broker won't give us a loan based on that appraisal because they feel its to high
- Wells Fargo (the builder's broker) will give us the loan based on 475k
- We don't like the rate of wells fargo and we think that the appraisal was artificially inflated just to get us into the loan(i've read that this has happened in the past).

So the question is, does Wells Fargo's mortgage offer to us meet the contract contingency of us being able to get a loan even though we declined their offer? 

I'm know I might be thinking to much into this but I just want to learn and make sure I understand how things work.

Thanks all!

-Scott

[Rich_in_CT]

Appraisers jacking up the price to make the mortgage work....hmmm isn't this what the current mortgage meltdown has a lot to do with?

[Roger J]

Here's my opinion, and educated though it is that's all it is, an opinion.

No, you should not be held to your contract because the seller's found an appraiser that values the property higher nor because the seller has found you financing on that higher price.  You went to a lender in good faith, had the prop appraised, and it didn't work.  Frankly, if the seller tried to push this, any half-brain RE agent or attorney could get your money back and probably more.  I wouldn't worry too much.

Raj

[scostell]

Thanks again, my wife and I appreciate your helping us out. 

[christopher w]

The problem is that technically if Wells Fargo has you approved you do meet the financing contingency. Have you taken into account that your appraiser did a poor job? Or that Wells fargo's appraiser is more familiar with the area because they do more appraisals in that area? You need to review the appraisal and see where the comps they are using are from. If they are all from the building you are buying in the value could be skewed. Also, chances are the builder is not going to drop his price because that will negatively his ability to get his others units appraised. You may ask for other concessions like six months of payments, but if he drops his price then it drops the value of all his units.

[scostell]

Hi Chris, thanks for your input.

I'm not sure which appraiser knows the market better, but I know that getting the comps from my appraiser friend shows not one that is in the same price range that Wells Fargo is saying ours is appraising at.  I grew up in this area (30 years) and I know the developments where all the comps are at so I've got a pretty good idea how comparable they are.  Also it should be mentioned that the same exact unit in the other building is listed at 449,900(25k less then our unit, and it has upgraded kitchen and carpets). 

Now with all this said, if our broker's re-appraisal of the property is the 475k and we can get the mortgage then that's fine, I will be happy to close at that price.  But I can see how our broker's appraisal was only for 455k after looking at the comps myself and knowing the area.  We will hopefully find out today. 

 

[Roger J]

The problem is that technically if Wells Fargo has you approved you do meet the financing contingency.

Again, getting "approved" by a lender (and appraiser) that is not only referred by the seller, BUT working FOR the seller is not approved.  Don't know, but I'd also wager that Wells Fargo is also the lender that has invested in the builder on these as well, which makes it even MORE beneficial for them to move the units along even if the value is (heck, especially IF) no longer there.  Hardly a neutral third party loan or appraisal.

Raj