low appraisal - re-negotiate

[Baker]

Hi MMM community,

I'm currently in contract in SoCal to sell my investment property.  SoCal property appears to be appreciating and I listed my property on the market for 335k.  Within the first day, I received 3 offers and I countered to give everyone to give their best offer.  I picked the best offer at 351k, which was another investor.

Everything is moving along smoothly until we hit the appraisal.  Property appraised for 345k.  The other investor is now saying they want to reduce the price by 6k .  RE Agents wants this deal to go through and thinks the appraisal was good (obviously they want their commission).

Here is where we stand now.  The buyer is not in the US until almost the end of month and says he can't docusign or fax a formal request to reduce price.  The buyers agent has been sending over emails where he says to the agent to re-negotiate the 6k. He is also commenting on how we are closing in 3 weeks.

I've advised my RE Agent that I will give them the weekend to submit a formal counter to modify it; otherwise, I'm going to request they remove the appraisal contingency and all other contingencies because it has been 21 days.   The buyer has indicated that they already have lending approved.

I believe (but could be wrong) that buyer has to remove contingencies in writing in CA.  The comps are from 325-350k.  There are 2 others under contract which are both priced right now at 355k/357k.  There are no other equivalent units on the market in the community & last 1 to go under contract at 357k went within 1 day.

As of now, the property is rented but tenants are moving out prior to the close.

Any other advice on how to proceed?  Am I taking the right course in waiting for the formal offer?  My RE Agent wants to preemptively offer a lower price between 345-351k.  Should I wait for the buyer or preemptively offer? Should I stick to the original price or negotiate down? 

[Another Reader]

The ball is in the buyer's court.  The buyer likely can withdraw or ask to renegotiate during the appraisal contingency period, but until the contract is modified in writing, nothing has changed.  If there is an appraisal contingency written into the contract, what does the contract say about what happens if the property does not appraise?  At what point must the buyer decide?  21 days?

Does your agent have a copy of the buyer's loan approval?  I would never rely on the buyer's assurances that they have loan approval.  My guess is the buyer is being a bit of a jerk.  Without full loan approval, he can't move forward with the purchase and there is no closing in three weeks.  Have the inspection contingencies been removed?  No point in going any further in price negotiations until all the issues are on the table.

In your shoes, I would tell the buyer to remove the appraisal contingency or move on.  If the last unit like yours was priced at $357k and went under contract in a day, you should not have a problem finding a new buyer, unless your property is in poor condition.

[Baker]

Thank you for your quick response.  Inspection contingency has been removed.  The appraisal contingency is like you say in the buyer's court if it does not appraise for full value.  They can ask for a lower price or move on and I can reject or approve.  After 21 days (which is where we are now), we can ask they remove the appraisal contingency and give 2 days to respond.  If they don't respond, then I believe I can cancel the contract.

I'll ask my RE agent for a copy of their loan approval (good advice) as I have only seen evidence of this from their emails.

[Another Reader]

The buyer can also agree to the higher price, but they will have to make up the difference in cash.  The bank will only loan 80 percent of the contract price or the appraised value, whichever is lower.  If the buyer got a good price at $351k, they may elect to pay the extra, although that's not likely with an investor.

[Baker]

they offered 30% down.  Can a bank do 80% with an investor loan?  If so, the LTV should still be in the range.  I thought it was only 70%.

[iamlindoro]

they offered 30% down.  Can a bank do 80% with an investor loan?  If so, the LTV should still be in the range.  I thought it was only 70%.

There is huge variability in lenders, but if they're doing a direct overlay over Fannie Mae guidelines, they can do 80% on a SFH, and 75% on multifamily.  Portfolio lenders can do whatever they want, but are generally more strict, not less.