We close in 2 days – I did get 10k released after agreeing to the new sales price.

You got it right – looking in the rear view mirror I have no one to blame but myself – and will not beat myself up for the lost $30k at this point. Learning from this is the best I can do. Looking back – college was cheap!
I sought my realtors’ advice and followed their recommendations. While well intended they were wrong. When I asked ‘well what will be the likely outcome’?(with the low appraisal) the realtor said – well, they know the house has the value and the appraisal is off the mark, – they ’should’ just suck it up and pony up the difference in the loan. (I am fairly positive they could handle the financing – they were set long ago to make the transaction and could have gone higher)

I suggested getting a new appraisal el pronto and dismissed the idea as unnecessary on the realtors’ advice. Once again – follow my gut feelings next time.

Calling the bluff – well, they played the game much better than I. They said the appraiser is taking another look then waited till the last minute to make the new offer or walk, saying if I don’t take it then they have another house they want to move on the next day. (the house they sold is closing in 7 days and they have to be out 5 days after that)

I did not say “there is nothing to buy” as you replied…..there is a ton to buy. I know they know the difference in our homes vs others – and yes, they are emotionally attached – well- the wife is….the husband plays the conservative route ready to change course at the next hiccup. They play the good wife/ tough husband tag team very well.
These are people who put another offer in on a house AFTER selling theirs and before telling us they had sold theirs. (Remember – the contingency is that they sell their home to buy mine) The offer they made was on a short sale home and it only took them a day or two to figure out that that was a long shot and took a very long time to complete.
In this market I don’t have enough chips to go all in. I have been spending the chips I have on the mortgages of empty houses. No fun, but part of the game when you spec homes.

It is tough in this environment to stand firm when there is so much to choose from. I suppose if I had 5M in the bank I would play a different style of game.

I don’t know what the common advice is out there, but here it is every realtor telling their clients to ABSOLUTELY DO NOT RELEASE any earnest monies before you have closed on the sale of your home.
That has to change for me. If someone wants one of my homes, they need to show good faith by putting money behind their words.

And as for appraisals – I agree with most of the comments here – always have wondered why in the heck do the appraisers get the sale figure?

I didn’t quite get whether you have closed yet.

I would immediately get an appraisal from somebody you have never met before. 100% arms length. Don’t even give them the contract (they ask for that all the time).

And it is your job to CALL THEIR BLUFF

If there really is nothing out there to buy, say NO. They are emotionally invested in the home. Probably already measured for curtains. If there is no alternative, and you show a new appraisal, or you offer to pay for their new appraisal, and request that it be done with no manipulation or guidance, how can they debate that?

As for the contract, maybe you can try and firm up the contract and have a section that deals with multiple appraisals in the event that an appraisal doesn’t hit. Or require the appraisal to be done at a much earlier stage (as in 30 days before, vs 8)

Frank
(I am not a lawyer.)

OK – so here is the another side of the story. From Portland, OR

Understood we are in a receeding market – but we have held up pretty darn well compared to other parts of the country…….
I am a spec and custom builder and have 2 homes for sale priced at $925k since 5/07. Sold others comparable in 07 so we know the pricing is valid……and that was the peak.

Forward to April of 08′- dropped price to 799k – we negotiate with a buyer and take a contingency sale(their home sale) with a 90 day close at 740k. All goes well and the sale of buyers home occurs and then the bombshell hits 8 days before scheduled closing………appraisal comes in 100k under agreed to price. 100K!!!

Realtor gets info on properties used in comps….2 are 4 yrs old, 1 is 13 years old…….comping to my BRAND NEW CONSTRUCTION? And quality is not even a consideration. My realtor finds 5 comps of new construction within 3 miles which put us within the original sales price. Easily.

Buyer is up against the deadline for loan and moving…..and of course they don’t want to listen to any comps or entertain a second appraisal. They say at that price they can find better homes to buy. This is after taking their time originally to find our homes which they do not dispute are of higher quality than what they find on the market at the price. They KNOW the value is there.

But, they have that appraisal to use as leverage and know that if I don’t agree to their new price then they may disappear and I am left with a home that went pending then is back on the market (kiss of death as far as I have seen)
Short ending – they offer to continue if I reduce the sale price by 30k. At this point they have me by the short hairs and know it.

I feel the appraiser just cost me 30k with a faulty appraisal and I am investigating what my options may be.

Having an unrelated banker select an appraiser and doing a new appraisal can either keep my blood boiling or give me ulcers knowing that is what the appraisers are being guided towards in this market.

I predict that if builder are found to have closed on units using fraudulent practices, purchasers might be entitled to a refund, or some sort of compensation.

Frank

The developer/lender of the (REMOVED BY FRANK) Condo (REMOVED BY FRANK Development and REMOVED BY FRANK, respectively) which I know you have written about extensively, were guilty of inflating appraisals big time. It is the reason I (and many others did not close). The units are over 20% marked down now. I spoken to at least one purchasers who did close — he feels terrible. I hope something is done to clean up this industry. It is really shameful.

Great post. Saw the WSJ article and it hit home. I recently purchased a new condo with (what I think was) an inflated appraisal and ended up closing on the new construction condo and felt pretty good about my purchase. I obtained an independant appraisal after my discovery to find out it came in $40K below my initial appraisal from the Preferred lenders appraiser (that I paid for). I was too late on catching this but hopefully your posts will prevent this from happening to others. Keep up the good work.

PHil