This week, we received another question from a viewer: “the appraiser didn’t value our property at the purchase price. What do we do?” In other words, what happens if bank hires an appraiser who determines that the house you are buying is worth less than the agreed upon purchase price?
The first step is always to look at the Purchase and Sale Agreement. Your P&S may identify this as a potential issue and it may offer a solution. If the P&S contains a financing contingency clause it may state that if the appraiser determines the value is less than the purchase price, then the Buyer may terminate the P&S. This provides the Buyer with leverage to negotiate with the seller. Since the Buyer has to terminate, the seller will very often agree to lower the price to allow the transaction to continue.
What happens if the Seller will not negotiate and the Buyer still wants to buy? The Buyer’s next step should be to talk to lender. A low appraisal will result in a change to the loan to value ratio (“LTV”). Without adjusting the loan amount, the ratio between the loan amount and appraised value will be lower. A common solution in this case is for the Buyer to make a larger down payment.
Sellers should remember that the next potential Buyer should receive the same appraisal. Engaging in good faith negotiation is always a good idea.
If you would like more information about low appraisals contact Stiles Law at (781) 319-1900.
In this week’s video, I want to update you on a recent video that covered purchasing a bank-owned property. In our prior video we discussed how to purchase a bank-owned property, things to look for in the P&S, and things to look for in the transaction itself.
There is a recently decided case that came down that is relevant to the process of conducting a foreclosure. Thompson v. JPMorgan Chase Bank, N.A., No. 18-1559, 2019 WL 493164 (1st Cir. Feb. 8, 2019). In short, lenders and servicers were not using the precise language of the default provision in the mortgage when notifying borrowers of their impending foreclosure. The United States First Circuit Court of Appeals ruled that Massachusetts law required “strict compliance” when a lender exercises its right to foreclose. Id. citing Pinti v. Emigrant Mortg. Co., 472 Mass. 226 (2015). So what does that mean for the buyer or subsequent owner of a foreclosed property?
If you are buying a bank-owned property, before spending any money, confirm with the bank if they are compliant with Thompson v. JP Morgan Chase. Your attorney and title insurance underwriter will review the notices that were sent against the default provision contained in the mortgage. If the notice is not identical, the foreclosure may be deemed invalid. If the lender has complied with the requirements of Thompson, then the transaction will proceed as an ordinary bank-owned purchase.
What if you bought a bank-owned property? If you purchased an owner’s title policy, you are protected. Further, once three years have passed since the date of the foreclosure auction, the former owner’s claim for improper notice is barred.
Here’s a story about a conversation I had with a referral partner of ours. She was showing a property. After leaving, she received a phone call from the Seller who is her client. He asked her, “Why didn’t you tell them about the fireplace? Why were you so bearish on the pool? The pool is great!” The listing agent sat back and thought: how could the Seller possibly know about these conversations? “Were you taping us?”
In MA it is illegal to record the audio of people who do not know that you are recording them. So what should you do?
Sellers: We recommend against recording anyone at your open house, especially without disclosing the fact that you are recording to them. You may be committing a crime. Technically, video taping may be acceptable but it is probably bad faith. You are trying to gain a competitive advantage by recording prospective Buyers. Sellers should disclose that the property is subject to recording.
Professionals: if you are aware of recording, you need to disclose that fact. It should be disclosed on the MLS. It should also be disclosed to each person that is walking into the house. We recommend asking the Seller if they are recording. If so, you should tell them that you will have to disclose this to all prospective Buyers. Further, if a Seller is able to view a potential Buyer and use their appearance in deciding whether to sell to that particular buyer, there may be a potential fair housing violation.
Buyers: you should assume that any house you may be walking through has recording devices. Simply walk through without emotion, without conversation and discuss once you leave the house.
We received another question: “What is the right number, an appraised value or an assessed value?”
First, what’s the difference? An appraised value is a number that is determined by a licensed appraiser. Appraisers must take continuing education classes, they must go through licensing, and often use multiple factors to determine what a fair market value for the property may be. For instances, comparable properties that have recently sold, quality of finishes, or other improvements can impact the appraised value.
Assessed value is determined by the town through the assessor’s office. An appraised value is almost always closer to fair market value. Assessed value is less accurate and is used only to determine your tax obligations.
Appraisals cost money, so what should you do if you want to sell? We always recommend against relying on an assessment. Usually, spending money on an appraisal not necessary because a quality agent can generate an estimated value by doing a comparative market analysis. The agent will come up with a range of what the house may be worth.
Stiles Law, with offices located in Boston and Marshfield, Massachusetts, is a firm concentrating in real estate conveyancing and mortgage lending services, representing buyers, sellers, borrowers, banks, mortgage companies, investors, builders and developers in all of their real estate and mortgage transactions. Stiles Law serves all areas of eastern Massachusetts–the North Shore, Boston, and Cape Cod, in addition to the entire South Shore, including: Plymouth, Kingston, Duxbury, Hanover, Pembroke, Marshfield, Scituate, Norwell, Cohasset, Hull, Hingham, Weymouth, Braintree, and Quincy.
We received this question from a referral partner: “if we agree verbally that we’ve accepted an offer, is that binding?” In short, no. To form a valid real estate contract in Massachusetts, the contract must be in writing.
Massachusetts Courts have upheld verbal contracts in other circumstances. There are certain types of contracts, like contracts for the sale of real estate, which must be in writing. Take a look at M.G.L. 259 § 1 if you are curious about the other types of contracts. We often see this become a sticking point in a situation where there are multiple bidders. When the high bidder is notified verbally that their offer has been “accepted,” the high bidder often think the contract is legally accepted. If it’s not in writing, it’s not technically accepted.
You may ask, what officially constitutes “writing?” Massachusetts courts have construed emails as acceptable writing. Be careful, texts may be sufficient to create a binding contract. If you are negotiating terms over text message, be mindful that a valid contract can be formed.
Stiles Law, with offices located in Boston and Marshfield, Massachusetts, is a firm concentrating in real estate conveyancing and mortgage lending services, representing buyers, sellers, borrowers, banks, mortgage companies, investors, builders and developers in all of their real estate and mortgage transactions. Stiles Law serves all areas of eastern Massachusetts–the North Shore, Boston, and Cape Cod, in addition to the entire South Shore, including: Plymouth, Kingston, Duxbury, Hanover, Pembroke, Marshfield, Scituate, Norwell, Cohasset, Hull, Hingham, Weymouth, Braintree, and Quincy.
