Third party financing addendums and appraisal waivers

Third party financing addendums and appraisal waivers. What are they? We’re going to discuss that here and much more. That’s luxury listing agent Shana Acquisto. I’m kind of here. My name’s Mike. We’re still kind of here. Kind of here. Shana, tell us just a little bit about.

Ok, so we all know that we’re in a little bit of a challenging market when you have a buyer putting in an offer and trying to scare home. So I want to kind of dive in to the third party financing and the appraisal addendum, which waives the value. Right. So what that means is your client is waiving the option to terminate the contract based on the value. It’s not just the appraisal. OK, so we’re going to show you what that means.

So first, Omkar, if you can pull up the third party finance addendum, OK, I’m going to want to look at this a little careful, a little more carefully, OK? So if you scroll down a little bit, we’ve got type of financing there. But let’s go down more importantly to approval of financing and go up just a little bit more. So we’re going to stop. Well, keep going a little bit more. I want to get that property approval, OK, right there. So we have your approval is split into two parts. You have a buyer approval, which is their ability be able to close the loan based on their credit, their income, all of that. So we know that’s one part of it.

The second one is property approval. OK, so the property approval, if you read this, says what? If the buyer’s lender determines the property does not satisfy underwriting requirements for the loan, including but not limited to appraisal insurability and lender required repairs, buyer no later than three days before the closing may terminate the contract. OK, so what this means and why we’re bringing this up is because just because you have the appraisal waiver doesn’t mean that you’re waiving everything you’re waiving if the value comes in under value.

Right. And you’re still going to make you know, you’re still going to move forward with this contract from a buyer’s standpoint. So let’s talk about that, so the reason I want to bring this up, say you have a buyer and you’re nervous, right? He’s going to go in and he’s going to purchase this property, is going to waive the appraisal. And you’re like, oh, my gosh, he’s going to have to come out of pocket, maybe twenty thousand dollars. His home is not in the best condition. He may have a roof problem. He may have siding that’s all damaged and, you know, warped and would rot and everything like that.

So he’s going to have to take care of that as well. Not necessarily. So we have waived the appraisal value. But if the appraiser comes out and he says, you know what, this roof is shot, I saw shingles missing everywhere. He’s going to put that on the appraisal. He’s also going to put wood rot. We know that they are really big on putting any type of wood rot on that report. The lender may say, you know what, the value, you know, is one part of it. But we also need the roof done in the wood repaired before we can make the loan. And it could be that they can’t even get insurance because of that. So if that happens, even if you have waived the appraisal, you still have recourse to go back and say, hey, we need this done or we can terminate and get our earnest money back.

So does that make sense? Yeah, it does. They’re completely separate items, right? Insurability is one item, making value is another. And then the condition of the home is totally separate. And then what the condition of the the condition the home is. Can you make a loan on it. Right. That from the appraisal. And then it would be your choice. You know, separate from that is a totally different concept. Correct. Of does this home have repairs that you as a buyer would like to make. Right. Maybe from the inspection report. Right. That’s a totally, totally separate thing. Those are each uniquely different. And what Sean is doing is breaking this down for you and telling you exactly what’s included with this.

Yes, because the appraisers job is to work for the lender and  let them know what they feel the market value is and protect them, protect them in their investment. Right. They’re securing this loan and they want to make sure that they’re not loaning on something that’s crumbling and falling apart.

So so they give their opinion of value. Right. And then they’re also assessing the condition of the property from a very, very major standpoint. Yes. Making sure that the major, major items are protected. Right. So that’s the big distinction.

I just want to make sure you guys knew the difference in that. And it wasn’t just, oh, if we waive the appraisal, we waive everything.

That means we have no recourse. Not necessarily. That’s just another little. Out and it’s a protection for your buyer in case they’re going in on a home that’s maybe not updated and shiny new. Any questions on that? Let’s talk about them in our meetings. But, you know, that’s a way that you can add value to your client. Explain that to them so they fully understand and they might feel a little better and a little more confident moving forward, knowing that information.

And if you missed some of those items, I might encourage you just to win back. Watch that again. Understand it again. Get your Documents right. So you understand the third party finance we now have. Let’s go ahead and pull up this addendum for the lender’s appraisal and I’ll show you in here. So if you look at the financing described in the third party financing attached to the contract, right. So it says waiver, partial waiver and additional right to terminate.

They all state that, you know, they the buyer, the buyer has the right to terminate for value. Value does not satisfy under lender’s underwriting requirements because of the opinion of value. So it’s all price. It doesn’t say anything about condition or insurability.

So there you go. Very good. So it’s kind of important. These just to two simple documents. What we’re going to make sure we do is we’re going to chat in those to the description for you and we’ll have each of those documents. There would probably be great. Go ahead and print it, read it, understand it, make sure that you know it for your client and make sure that your client also understands it.

So let me point one more thing out. So you mentioned inspection. So this is the appraisers. Assessment right in his inspection, not a third party inspector, correct? OK, so I want to make sure you guys know that that even if they waived an option, period, but they went ahead and had an inspection done and the inspector notated these things, that’s different.

Has to be only if the appraiser sees these items, puts them on the report and the underwriter requires them to be corrected prior to issuing The loan in. The big major thing that he’s looking for is to make sure that the roof is in reasonable repair. Right, visually. Mm hmm. Right. And then he also wants to ensure that there’s not just major, major problems. Would rock comes up more often than you would think on these reports on the exterior. But he’s looking for major, major sys items. He is. He’s not telling Entourage.

So now these are major, major items. And Stacy put in a caving driveway and I’ve seen a caving driveway or major cracks in the driveway. Sometimes it comes up, sometimes it doesn’t. But, you know, I don’t know,

In a caving driveway might also be known as driveway creep.

Oh, yeah, so is a past TNT.

We did cover that. Thank you for getting that in and being an active participant, Stacey. Appreciate that. OK, you feel good about that?

I feel good about that. One more. We have a question mark. Mike Shepherd said, How often do appraiser appraisals and lenders catch these things? Do you bring attention to them, do you? I don’t know, that’s a whole other probably side topic. I think it’s probably a 50 50 shot if they catch them or not. If it’s super visual, they’re going to catch it. If it’s not, then and they have to really dig and look for it, especially in this market where they’re super swamped, may not get caught.

So and we might start seeing some of these homes actually appraise. Right. So that instead of waiving the appraisal, if you had two or three sales in your neighborhood, if these prices all of a sudden a new value is established. So it’s really odd that all of a sudden, maybe a month from now, we have all these new values established in the foothold. It’s like the whole has been set and then all of them will not have a problem raising. And you’re not worried about waiving the right to appraise, but then does it adjust again? Right. Right. And goal one another extension, so to speak.

And Rachel said it’s rare. I mean, you typically do see this in a in a government backed loan, FHA or VA. But we have seen them in conventional settings and we’ve seen them in a I mean, I think it was a few years ago, I’ll have to confirm with Stacey, but there was one on it. I’m a nice, more expensive home that something came back and it had to be corrected.

So you just never know. And like I said, I think it’s probably a 50 50 shot, but if it’s brought to their attention in advance and you talk to the lender about it, maybe it gets discovered, maybe you want it discovered, maybe don’t. I don’t know, just food for thought there.

Episode Recorded Live on YouTube 4.26.21

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