Ben Lee, Esq. 
Real Estate Broker / Licensed Attorney
ben@benleeproperties.com
Coldwell Banker
Beverly Hills North Office
301 N. Canon Drive, Suite E
Beverly Hills, CA 90210
(310) 858-5489 direct
(310) 704-6580 cell
Ben Lee has sold properties throughout the Westside of Los Angeles, including Cheviot Hills, Pacific Palisades, Santa Monica, Brentwood, Beverlywood, Westwood and Beverly Hills. Ben is a Cheviot Hills resident. Learn more about Ben here.
| A Note Regarding Lender’s Tough Standards and Appraisal Reviews |
|
A Note Regarding Lender’s Tough Standards and Appraisal Reviews In this market, there are many factors working against a successful real estate transaction. Everyone knows that the lenders are tough, but many just assume that this pertains to the borrower / buyer’s ability to obtain the financing required. However, many buyers don’t realize that just qualifying for the loan is not the end of the story. The bank will then proceed to underwrite each piece of property to determine if they feel that there is adequate value to secure their loan. In other words, a lender does not want to make a loan on a property that it feels does not have the value to support its loan. When the market was hot, appraisals were seldom questioned. However, nowadays, even the most sophisticated appraisers are having their values chopped by the lenders. This creates an entirely new dynamic in the home purchase process. The dynamic comes into play when the buyer and seller have reached an agreement on price and terms, and everyone is feeling good about the transaction closing. The bank can then come in, many times at the 11th hour (it can be even days before closing is scheduled) and chop the value, thereby reducing the amount of the loan. So what do loan commitments mean? Most loan commitments are conditional, and the bank reserves the right to review its own appraisal up until the last minute. You must read the conditions carefully in order to protect yourself and your deposit!!! THIS HAPPENS IN REAL LIFE One transaction that I recently closed had just such a problem. All contingencies were removed, and we were moving towards funding. On the advice of the loan broker, the buyer had removed loan AND appraisal contingency, and the buyer’s deposit was “hard” or non-refundable. The loan broker then gave me a shock. He called me and said that the bank had opted to review the appraisal, and had cut the value of the property by 75,000. That meant that the buyer would have to come up with an additional $75,000 which they did not have. More importantly, however was that fact that the buyer was faced with the prospect of buying a home that they were just told did not measure up value wise. And if they decided to back out, they would lose their deposit! SO WHAT TO DO? I figured we should try to turn a negative to a positive and USE THIS AS AN OPPORTUNITY TO RENEGOTIATE! I called the seller’s broker and told her what happened. After a week of back and forth, the Seller agreed to reduce the purchase price, and my buyer got an ever better deal!!! Another Crazy Story In speaking to a colleague, I heard a recent REO tale that tickled me and I wanted to share it. He told me about a transaction where Countrywide had foreclosed on a property, and was selling it as an REO (Real Estate Owned by the bank). My colleague’s clients were in escrow to purchse the property from the bank. The bank was making the loan as well. So the bank sent out its own appraiser and all checked out. However, the bank then opened an APPRAISAL REVIEW and decided to cut the appraised value by $50,000. So the broker representing the buyer used this as an opportunity to RENEGOTIATE and Countrywide reduced the purchase price by $50,000! This is so funny, because it was Countrywide selling the property, Countrywide making the loan, and Countrywide appraising the property. So, in effect, Countrywide felt that it was selling the property too high, and wouldn’t make the loan to support the sale! So, the bank cost itself $50,000! |
