By Ilyce R. Glink with Samuel J. Tamkin
Saturday, June 21, 2008
Q. I recently entered into a contract to buy a house, but the deal went bad because the house did not appraise for the negotiated price.
The offer was accepted by the seller contingent on the house appraising for the negotiated price. An initial appraisal found that the value met the price. However, I used to be a real estate agent and questioned that appraisal. The comparables were taken from sales that occurred nine months ago, and the cost per square foot was high on the house we were going to purchase compared with those sales.
The appraiser, our lender and our agent all assured us that the appraisal was good. So we went ahead with the deal, and we were approved for our loan.
When it came time to close on the house, our lender ordered a second appraisal. That appraisal came in $55,000 below the first. We went back to the seller with a form to amend the price, but he wouldn't lower it.
Of course, I wasn't going to get a loan for the original amount, and I wasn't about to pay cash to make up the difference. I did not terminate the contract, however. The seller finally terminated the deal -- but now he wants my earnest money. He thinks he is entitled to it because we did not go through with the loan. Our broker also says the seller is entitled to the money according to the contract.
Why is the seller entitled to the earnest money when he is the one who terminated the contract? I was willing to negotiate the price for the home, but he wasn't.
Also, shouldn't the lender be liable because it said the appraisal was fine, but right before the closing revisited the appraisal and did not give us the loan?
A. You need to look at the term of your purchase contract to see whether the seller is entitled to keep your earnest money. Because the first appraisal came in at the purchase price and your loan was approved, the contract may have obligated you to proceed with the purchase at that point. The risk under the contract that your lender would require an additional appraisal might have been yours.
If you had qualms about that appraisal, you should have contested it then and made sure that your lender truly was satisfied. If you did discuss the appraisal issue with your lender and received a loan commitment, you may have a right to go after your lender for failure to fund your deal. But you need to look at the fine print of the loan commitment that your lender gave you. That loan commitment may have had conditions that allow your lender to review your credit and review the property right before the closing.
Many lenders now are pulling second appraisals before closing because the price of homes is falling so quickly in so many areas, so I'm not surprised your lender did so.
And with the current flux in the real estate market, it also does not surprise me that a second appraiser looking at other information could come in at a much lower price.
Generally, a financing contingency or appraisal contingency provision in a contract would give you, the buyer, the right to cancel the deal if you could not get financing or the home did not appraise. However, these contingencies would also set a deadline for you to terminate the deal. If you failed to give notice in time, you would be required to proceed or lose your deposit.
Because the second appraisal came just before the deal closed, you probably were beyond your contingency period. Your contract probably did not give you the right to terminate the deal that late in the game without forfeiting your earnest money.
You say that you decided not to terminate the deal but rather tried to have the seller reduce his selling price. Many appraisal contingencies would not force the seller to reduce the sales price. If your contract was such that you had the right to terminate, you would have to do that, rather than try to reduce the price.
Consider reviewing your contract and your transaction details with a real estate lawyer to determine whether you can get your earnest money back.
My friend wants to leave his apartment to me in his will with the lowest tax liabilities possible if I decide to sell it. What is the best way to do it? My husband and I are not planning to live in it.
If you inherit the property, you will probably be able to sell it immediately without paying any taxes. That's because you will inherit the property at the market value on the day of your friend's death.
If you sell it quickly, you will be selling it for what is considered the new cost basis for the property, and so you would not owe any federal income tax on the sale.
If your friend's estate is larger than he can pass down tax-free, the estate, not you, would pay any taxes owed.
I'm saving for a down payment on a new house. My goal is to save $24,000 within the next two years. Where is the best place to keep that money? Traditional savings accounts are paying only about 1 percent interest. Because I am contributing twice monthly, it doesn't make sense to put the money in my account at the investment company. It will cost me $300 in trading fees over two years.
There is no great place for short-term cash at the moment. If you shop around, you can find some Internet banks offering savings rates of 2 to 4 percent in money market accounts. To search for these, check out Bankrate.com. Be sure to read the fine print. Some of these banks require minimums to get their advertised rates, and there may be other sticking points.
Some mutual fund companies allow you to set up accounts in which you can make a deposit without paying brokerage or trading fees.
I signed a contract to buy a condominium in New York in "as-is" condition. The old floor plan provided to me indicates that it is a one-bedroom unit, but when I looked at the unit, there was a partition dividing the living room. That essentially added a room to the unit.
This additional room is the main reason I signed the contract to buy this unit. However, the closing is now being delayed because the condo board will not approve the sale unless the seller tears down the partition.
I no longer want to purchase this condo if it does not have this extra room. Do you think that the seller has misrepresented the condition of the unit and that I may terminate this contract and recover my deposit? What remedies would you suggest?
While you are buying the condominium in "as-is" condition, that does not mean that you have to accept it as changed by the seller.
Your contract might provide that you agreed to take the condo in the condition it was in as of the contract date. If the condo burns down or is materially changed, that risk is, or should be, assumed by the seller.
In your case, you probably have a good argument that the change in the condo is material enough that you are not required to close on the purchase.
When it comes to the misrepresentation claim, you might have a harder time. Did the seller lie to you? Presumably, you viewed the condo before making your offer. You might even have had a professional inspection of the condo. If you saw the condo and you knew what you were getting, the seller probably did not misrepresent any information.
Most municipalities have ordinances relating to making improvements within a dwelling. If your seller constructed the partition without the required permits, your seller might have violated those ordinances.
If the partition created an additional bedroom in a building that is not zoned for that particular type of unit, the seller also might have violated zoning laws.
And if the seller was required to obtain permission from the condominium association to make any improvements in the unit and failed to do so, the seller got caught.
The real question is whether the seller knew that he needed permits from the municipality and permission from the association to make this change. If the seller knew that, the seller may have had a duty to disclose the lack of permits under your local seller disclosure laws.
Most states have seller disclosure laws. These laws require the seller of residential property to disclose to a buyer material defects or other hidden problems with the property being sold. If a seller fails to make these required disclosures accurately, in some states the buyer can terminate the contract and sue the seller for the damages that the buyer has sustained, including legal fees.
You should talk to your real estate lawyer to determine whether you have the right to claim that the seller is in default under the contract for failing to deliver the condo in the condition required. Also, ask whether the seller should have disclosed problems relating to the partition. You can discuss what your options are to recover damages from the seller or come to some settlement.
Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is "100 Questions Every First-Time Home Buyer Should Ask." Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through Glink's Web sites, http://www.thinkglink.com and http://www.expertrealestatetips.net.
© 2008 Ilyce R. Glink and Samuel J. Tamkin
Distributed by Tribune Media Services
View all comments that have been posted about this article.