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After making an offer to a co-op that limits financing to 75%, the seller's broker has communicated that the seller wants to have a mortgage contingency clause under which I would finance down to 70% if the appraisal came in low. Is this standard practice or a warning sign that the property is over-priced? Thank you.
I'd say, it Isis's likely overpriced
most likely its a warning sign that the property is overpriced
what does it mean feng? the building doesn't let you put down more than 25%? are they nuts?
no, the min level of financing is 75% but the seller wants the option for me to finance down to say 70% (take on a smaller mortgage) if the bank appraisal came in lower.
it doesn't mean anything. The seller just wants to make sure you are buying this. You could easily play with the appraisal to your favor. It doesn't necessarily mean it's overpriced, just do your research and make sure the offer makes sense to you. Most likely, the appraisal will come in line with the contract price (unless you were clueless and clearly overpaid).
As u mention, Its basically a sell side convenience in the event the appraisal comes in lower it will be that much harder for you to get out of the deal using the 'financing contingency' verbiage in the contracts if the bank wont lend 75% on the full contract price. Another way of saying this is, the seller is worried comparable sales may not justify the deal price given available data at this time. Maybe a deal is pending but not closed that could help justify it, but the appraiser will focus on closed, public record deals that are deemed most relevant to your target property
feng, when you say min level of financing is 75%, do you mean minimum downpayment is 75% or minimum mortgage is 75%?
>feng, when you say min level of financing is 75%, do you mean minimum downpayment is 75% or minimum mortgage is 75%?
Could it be any clearer?
Read what you wrote, than read it again, then read it again.
Its also possible as banks have become much tighter,seller wants to make sure you can close if the bank is only willing to finance 70%.
Let's just put some fake numbers on this:
Assume a $500,000 agreed price.
75% financing / appraisal at sale price = $375,000 loan (co-op requirements)
70% financing = $350,000 loan
So if the appraisal came in as low as $466,667 you'd still have to buy it for $500,000 and come up with the extra $25,000 to fill the gap. (That's based on the $350,000 financing amount as per the contract, combined with the minimum 75% LTV as per the co-op). Personally, that seems like too big a spread to me, and a lot of price-correction leverage to give up, but that's your judgment call.
If you do it, be sure the contract language is very specific -- it may get complex when the bank's LTV standard differs from the co-op's 75% LTV rule and from the contract's 70% loan-to-price financing clause. (You could conceivably receive a bank commitment letter for 80% financing that satisfied the contract's financing clause but not the board requirements, complicating at least an emotional and paperwork mess if not contractual issues.)
the seller may have information that leads him to such a specific request. a comp you aren't aware of or the appraisal on his own mortgage perhaps.
time to figure out if they have an alternative.
if they have not said or hinted they have another bidder at that price or higher, say you won't do it, instruct your attorney and mortgage broker to make no contact with the other side for several days.
oh yeah, and make preparations to bid on other apartments.
thanks for the helpful comments. the sellers broker has communicated to me that they have another offer (parent for child) who has bid the same price and is willing to finance less but the seller prefers me because of strong financials and less complicated application. While truthskr10 makes a good point re: wanting to be conservative, my gut (and cautious personality) makes me think there may be something else (ala crescent 22's comment) and that the property could be slightly overpriced.
truthskr10, no, it's not clear at all. please read what yourself wrote and read what yourself wrote and read what yourself wrote and read what yourself wrote
feng, are u trying to say MAX 75% financing? you wrote MIN?
It's a warning sign. I agree with Crescent22: you need to resume the search.
The golden rule turned upside down.
The one who has real estate makes the rules apparently. Flmaozz
Did you read about the guy who jumped out of the monorail into the zoo?
Kevifeng, you should not buy if you have to rely on appraisal as the true value. Appraisals can be off.
Read whatt w67 wrote and think
Who in this interaction will be showing up with the money?
Everyone waits on the customer. If you fear that they might pull the deal without it, just remember you couldn't beg Madoff to take your money.
Behave like a customer, think like a customer and do not fear the loss of the sale.
Allow the seller to fear the loss of the customers.
Not to get all zen ninja but it's a confidence game.
I'd consider such a request as to give me pause to the agreed upon price.
P.S. I was recently in a somewhat similar situation. After agreeing upon the price the seller demanded that I wave the mortgage contingency.
At this point, the seller already had a complete look see at financial underware draw. They knew the mortgage and the sale would be a lock yet they made the demand. I stood my ground and refused ( hey, ya never know)
Lost the property to an all cash deal for the same agreed upon amount waiting in the wings. I believe the buyer actually wanted me to have it.
Only one loser in this story.........me
Ya roll the dice, ya take ya chances.
>feng, are u trying to say MAX 75% financing? you wrote MIN?
Obviously,please read the original statement;
"After making an offer to a co-op that limits financing to 75%, the seller's broker has communicated that the seller wants to have a mortgage contingency clause under which I would finance down to 70%"
You made a mountain out of a no hill OBVIOUS antonym error.
Please show me any building that requires a 75% down payment. Maybe 40% worst case scenario somewhere excluding those that downright may require all cash purchase.