If a buyer is denied a loan, based on the loan described in the contingency, the buyer must 1) notify the Seller within the contingency time period AND must 2) provide the Seller with a Loan Denial Letter within seven (7) days from the date of notice.
A Loan Denial Letter must be for the Loan(s) described in the Finance Contingency. A buyer may also apply for different conventional loans, however, the denial of such other loans is not be a basis for a buyer to terminate. If there was an approved lender, the letter must be from the Approved Lender.
The Loan Denial Letter may be provided to Seller after the Financing Contingency Period has ended, if the seven (7) day period to provide the Loan Denial Letter falls outside of the Financing Contingency Period. The reason for the additional 7-day period to produce the Loan Denial Letter is because lenders may not be timely. It may take days for the lender to produce the letter. If, however, the lender does not produce the letter within the 7-day period, the finance contingency is completed and cannot be relied on to terminate. In effect, the sale becomes a “no financing” sale and the buyer’s earnest money is at risk.
In this very hot seller’s market, buyers are doing everything they can to be the winning bid in multiple offer situations. It is now very common to see buyers waiving the finance contingency and agreeing to pay a purchase price above the appraised price.
Avoid extra steps and stress. Consider the following appraisal and price issues:
by Mark Moore with Fairway Mortgage
The “appraisal gap” as it’s becoming known, is a real issue with the lack of homes and so many buyers. Multiple offers are commonplace and so are bidding wars. Even good appraisers who know the market and understand the actual definition of fair market value are struggling to come up with comparable sales that meet the criteria of the agencies (Fannie, Freddie, FHA, etc).
Now more than ever, current market data provided to the appraisers can help. Be sure you have copies available of the multiple offers on your listings, and let the lender know that you have them and are willing to provide to the appraiser. Also, any recent market information you have that the appraiser might not know about can help. For example, do the realtors involved know of a similar property that has just closed in the last week or is scheduled to close just before the subject property? If so, providing that information is another way to help appraisers get the value in this tough market.
Fairway uses a very small rotations of quality appraisers in each area of town. We attempt to provide enough work to those appraisers to become important to them. They are a very important part of our team and critical to our success and are graded on accuracy, timeliness, and other factors to determine which appraisers make it into our “elite rotation”. As a result, we have had very few appraisal issues during this market, and we have become the “bailout” lender for many of the big banks, credit unions, and internet lenders who do not use such a strategy.
However, with the market pressures (everyone asking for faster and faster appraisal contingencies) this can sometimes force us off the elite panel and into a less trusted group of appraisers to meet the ever-shortening time frames. If you have a good offer, with a solid local lender, encourage your sellers to give that lender time to get a quality appraiser out to the property. It will create much less stress and hassle down the road! Faster isn’t always better!!
If you have further questions about this or anything else, we are happy to assist.
Low inventory has been driving multiple-offer situations and bidding wars.
If the perfect house is already under agreement, your Buyer may want to secure a position by using a back-up offer.
GAR Forms has the situation covered by submitting the basic Purchase and Sale Agreement and including a Back-Up Agreement Contingency (F604) as an Exhibit. If the agreement is accepted by the Seller with the Back-Up Agreement Contingency Exhibit included, it becomes a Binding Agreement – in second position.
From the Seller’s standpoint, there are good reasons to accept a back-up, especially if the price and terms are better than the first agreement. From the Buyer’s standpoint, there are considerations. The back-up Buyer may need to increase the price or be flexible on terms to be accepted as a back-up. Further, a back-up can work against the second Buyer by elevating the primary’s motivation to make the deal work, so the Primary buyer may be more likely to forgive inspection issues and be more cooperative in Seller negotiations.
All things considered, the Buyer’s risk is moderated by protections built into the GAR back-up contingency exhibit.
The back-up Buyer is not locked in until they become Primary..
Multiple Back-up Agreements
If there are multiple back-up agreements, the order that the Seller signed the agreements would be the order in which they are entitled to become primary. Later offers would, of course, most often be at higher prices. This would to entice the Seller to sign a backup offer instead of putting the home back on the market if the first sale failed.
Earnest Money Deposits
The timing of the earnest money deposit is a negotiable term. If your Buyer does not want to deposit earnest money until the agreement becomes primary, write it that way. But if the Agreement is written that the earnest money is due upon binding (or days after binding) agreement, then it must be paid that way. An accepted agreement, even one with a back-up contingency, is a binding agreement.
Note: Delaying payment of earnest money could be interpreted by the Seller as a negative strike against a Buyer. Something to consider.
The Binding Date Changes Upon Delivery of Notice of Primary Agreement Termination
Time limits for a secondary agreement that has become the primary agreement start on the date that the Seller sends Notice of the Termination of the Primary Agreement.
The new Primary Buyer still has the right to conduct its due diligence or fulfill other contingencies. If the changes to the contingency periods or the Due Diligence period overlap the closing date, then the new closing date is extended to seven (7) days from the last date Buyer has to fulfill Buyer’s contingencies or the end of any Due Diligence Period, whichever is later. (F604#5)
Hope this helps!