ADVICE NEEDED! Closing in less than a week - Options?

[stepingum]

We are buying a new home next week and trying not to panic, but are panicking. I'm the primary breadwinner in a non-essential industry and won't qualify for unemployment (unless it gets expanded in the right direction) because I recently took 16 months off to raise some children.

While I have no solid indication I'll be losing my job, I know my company is already struggling due to supply chain problems; a lockdown of any sort will completely shut down production and I can't see how that would be recoverable without some serious layoffs. We're scared. The purchase was already a little uncomfortable, but in a booming economy we were prepared for the risk. That has all changed now. What are our options? How do we get out of the purchase agreement if we choose to? One thing we're really struggling with is even if walking away is the right financial decision, we have a contractual obligation and so we feel morally obligated as well. Ugh!

More background: We already own a nice home, but it is rented out from when we were living abroad last year. The plan was to sell that one when the lease comes up the end of June. We are prepared to keep it rented out, if needed. That house is positive cash flow, but not if we start accounting for long term maintenance, that's why we wanted to sell it. It's my job instability combined with the housing uncertainty that has us worried. We are using all of our available cash to buy this house, but have $60k in Roth contributions we could tap, if needed. Obviously not ideal at all. No other debt.

[Another Reader]

You will probably lose your earnest money deposit, which is probably not a lot.  If you tell the lender your job is at risk, they will likely cancel the approval and you may get your deposit back. 

From what you describe, I would cancel the purchase and lose the money if necessary.  I would not renew the lease on the other house, and move back in.  Consider buying again in a couple of years, but next time, don't stretch to do it.

[waltworks]

There is probably no way to recover earnest money at this point, but I would just walk. You are not in a position to buy a new house that's a financial stretch.

Your worst case scenario (I've never heard of this actually happening) is that the sellers sue you to perform. But that's extremely unlikely IMO.

-W

[stepingum]

Thanks for the thoughts. We spent a good part of the day poring over contracts and there are a few unfortunate gotchas. We've already been cleared to close by our lender, which, according to a mortgage lender friend, means we probably can't exercise the financing contingency anymore. It's probably still worth calling tomorrow and see if they can get creative, but seems unlikely. If we can't find a way to make our financing fall through, there is a clause in our buyer-agent contract that says we have to pay him up to 7% of the contract price if we cancel outside of contingencies!! We have no idea if he would actually exercise that option, but in addition to the risk of being sued by the seller, we have a tough choice ahead of us. The reality is, while buying a house right now is obviously not the best financial choice, I don't think it would completely ruin us. We have roughly $250k equity in our other home so can afford to sell at a very steep discount if we absolutely had to and still walk away with a minimum of two-year emergency fund.

None of these are ideal positions to be in, but I think we are going to try to choose the least stressful path. Talking to our lender tomorrow will be the first step, as the financing contingency is the obvious best option. Next, I'd like to reach out to the seller and see how they are feeling about the sale, in light of the pandemic; a mutual agreement to cancel would be next best. If neither of those pan out, then we might contact an attorney for advice.

[norajean]

I would also factor in the loss of your rents and a big drop in rental rates, just in case the 30% unemployment predictIons pan out.

[Another Reader]

By June, the value of the house you want to sell may also have dropped significantly.  You may not be able to sell it at all.  Real estate markets are already starting to freeze because people are unable or unwilling to buy.  In your shoes, I would bail on the purchase at the cost of the earnest money.  Simply tell the lender your job is at risk but there is no formal notice.  The lenders know this is coming and will have to deal with this.

Look at it this way.  The house you are about to buy is already worth less than the contract price.  Possibly a lot less.  The house you own is going down in value as well.  You are going to lose a lot of money on this deal.  Lose less money by not buying the now overpriced house.

[stepingum]

If anyone has advice on HOW to walk away this late in the game, I would appreciate it. We don't care so much about the earnest money, but possibility of being sued AND having to pay all realtor fees ($27k) are the big stressors. Probably need to call an attorney, very intimidated by that option.

[Dicey]

If anyone has advice on HOW to walk away this late in the game, I would appreciate it. We don't care so much about the earnest money, but possibility of being sued AND having to pay all realtor fees ($27k) are the big stressors. Probably need to call an attorney, very intimidated by that option.

In your shoes, I'd be on the phone with the Realtor pronto. Suing you for the commission us going to cost them money. You could simply agree to have them represent you on a future transaction instead. If you don't come to an agreement, you could always pull the gloves off. Agree that they might be legally right, but morally wrong under the circumstances. Realtors rely on their reputations. Knowing that you could harvest the power of social media to communicate their lack of support during a pandemic could also be a powerful deterrent. I am not suggesting that you lead with threats, but use this knowledge to negotiate without fear. All Realtors live on commissions, so suggesting a partial commission payment could be to a reasonable solution for everyone involved. Sorry if I'm a bit all over the place, but you are not powerless in this transaction. Talk to the Realtor first, be reasonable, and go from there.

[Another Reader]

Just do it.  The broker would be a fool to go after you.  Not going to happen.  I like Dicey's advice, except I would not offer any commission. Play the potential job loss card.

[former player]

Can the financing contingency be used if financing is approved but then falls through before sale?  If so, talk to your lender.  Tell them you are a recent employee of a struggling company in a non-essential business, that the amount you are borrowing would have been alright in normal times but now puts you at high risk of defaulting if you lose your job and that in the circumstances you consider that the best solution all round is for them to remove your approved status rather than them take the risk of your going through with the purchase but then defaulting if things go wrong.

If that doesn't work then you need to negotiate with your realtor and get them to negotiate with the seller's realtor, to come to some agreement. It may cost you money to get an agreement allowing you to walk away, in which case you need to decide whether it is better to proceed with the purchase or walk away at an agreed cost.

Whatever you do, don't walk away without an agreement.  You could be on the hook not only for the deposit and transaction costs but also for the difference between what you have agreed to pay for the property and whatever it sells for to the next buyer, which could be a big enough sum for the sellers to think it worth taking you to court.

[stepingum]

We tried very hard to exercise the financing contingency, but because I'm still employed today, there is nothing they can do. I debated trying to negotiate a pay cut or part time work to reduce my salary, but the reality is that would take time to process and employment verification would have already occurred.

After exhausting options with the lender, I called our realtor. He asked the seller's agent if we could delay closing a few weeks (by then, it is likely employment verification would cause lending to fall through), but no dice. Sellers are mad. We seriously risk getting sued if we don't go through with this.

We are adjusting lending to 30-year term and only 5% down. Now we will have more than a year emergency fund to weather whatever happens. Still hope to sell the rental ASAP, but we don't have to panic sell. Once all this blows over we will obviously refinance to more favorable terms. I just can't face the prospect of having to go to court over this. I also can't help but feel for the sellers, probably in panic-mode over losing jobs as well. We are resilient. We are frugal. We will survive. I just might have to work past the age of 45. That seems pretty small, in the grand scheme of things.

[SeaWA]

Now it is a week later...

How did this all turn out?

[Dicey]

Now it is a week later...

How did this all turn out?

It might help to batsignal @stepingum. Yes, please, give us an update. If that doesn't work, you can try a pm @SeaWA.

[stepingum]

Ah sorry, just noticed the mention.

We are moved into the new house and really enjoying it. We're both still employed and I won't mention likelihood of that remaining stable, lest I jinx us! So far, so good!

We listed the rental on Sunday, had two showings yesterday and are eagerly awaiting feedback and more showing requests. Selling that is obviously the next big stressor and it's anybody's guess how that will go. We have a rather large cash cushion, but we still don't enjoy all the uncertainty!

There are a number of updates (and some deferred maintenance items) we would like to do on the new house, but we will obviously continue to hoard cash until things (jobs, house selling, general economy) become more certain. We are investing a little in things we really enjoy -- a chicken coop (actually just adding a door to the existing woodshed) and chicks, honey bees and seeds for the garden. 😊

[marty998]

Congratulations, I'm glad things have worked out well so far.

Realestate markets don't tend to crash like the stockmarket. The posts and advice given at the top of this thread happen to coincide with the bottom of the stockmarket, and perhaps that general mood was colouring the viewpoints.

There's rarely a need to panic, you were always able to settle, and you can always go through the bank's hardship provisions down the track if you needed to.

It's not like you're the only person facing uncertainty... if 1 bank customer has a problem, that person has a problem. If 1 million bank customers have a problem, the bank is going to work something out. They're not going to repossess a million homes in the middle of a pandemic, ruin their loan book and bankrupt themselves when they have cheap Fed funding.

[stepingum]

And the plot thickens. After more than 90 days on the market, we finally got a good offer and sealed the deal. And then just two weeks out from closing the appraisal came in waaaay low. Like $33k low, to be exact.

Apparently this is a new issue in the area where the majority of homes have been appraising below contract for the last month. What is going on?! It doesn't make sense to me! If someone is willing to pay for it, it seems the contract should set the value. It's almost like appraisers are trying to artificially deflate the market here.

I compared the appraisal report to the one we got just a few months ago on our current home (which, ironically, is also one of the comps), and basically the guy only made negative adjustments and didn't give credit for any positive differences (like a Lakeview! And City utilities!) It's absurd. I also googled him and he is a real piece of work... One-star, does a terrible job, and makes people cry.

Does anyone have any experience with something like this? What are our options? Our realtor is trying to get the bank to agree to a second appraisal, so hopefully that pans out. I've looked into writing an appraisal rebuttal, but the guy is such a jerk, I really doubt it would work. What else can we do? My husband doesn't handle "excitement" well so he is keen to just agree to the appraised value and move on. I value quality of life more than money, but this is absurd. If push comes to shove I'm ready to propose we split the 33k 3 ways and each take an $11k hit. But I woukd almost rather just pull the plug and rent it out for another year... Not sure I could get my husband on board with that idea. But if we're going to slash the price that much, I'd at least like to put it back on the market and get a pile of competing offers! If that doesn't solidify the market value of the home, I don't know what would!

[SndcxxJ]

Nothing wrong with contesting the appraisal.  It appears you might know more about the local market than this appraiser.  As a seller my father contested a low appraisal and the appraiser came up to meet the contract price.  On a different occasion as a buyer I received a low appraisal and used that to renegotiate the contract in my favor.  First talk to the buyers and see if they can come up with the extra cash to buy, and if they can't, then get the appraisal you know is right.  I wouldn't drop your sales price until you've exhausted those other two options to your best ability.

[theoverlook]

No way would I drop $33k if there's any chance the appraisal is wrong.

[stepingum]

I wrote a very thorough, well-researched appraisal rebuttal and the lender has accepted it and ordered a second appraisal! I was under the impression the rebuttal went right to the appraiser, and because he was such a jerk, wouldn't be worth the effort. Not so! A second appraisal is the best we could have hoped for!

[Dicey]

I wrote a very thorough, well-researched appraisal rebuttal and the lender has accepted it and ordered a second appraisal! I was under the impression the rebuttal went right to the appraiser, and because he was such a jerk, wouldn't be worth the effort. Not so! A second appraisal is the best we could have hoped for!

Congratulations! I had this happen when I was doing a re-fi on a rental property. For whatever reason, I actually got to speak to the appraiser before she did the appraisal. Because I was an original owner in a large development, I was able to give her some tips to look for when working in the community. For example, if the stove/oven configurations looks like this, it's builder's standard. However, if it looks like that, it mean's it's an upgrade, which included pullout shelves and extra cabinetry, plus better finishes. I gave her some other "tells" that she didn't know about. As a result, the comp came in amazingly high. The difference was that she used much better properties for the comps. It was a pretty fun experience. Of course, if I actually wanted to sell the house, I'd have to ask much less, but I got the LTV I needed for the re-fi, for the win.

My tip for you is if there is anything different and better about your property that isn't blatantly obvious (hmmm, or maybe even if it is), consider making a list and leaving it for the appraiser, so they don't miss anything. I would particularly concentrate on things the previous appraiser missed. That will help the second person justify the higher appraisal.

Also, I just remembered this happened with another property we purchased. They were sending an appraiser from way out of the area. Our realtor met them at the house and presented them with a file of good comps in the immediate area, which really helped a lot. You can do the same with info you pull from Zillow, or Redfin or Realtor, etc. It's not the same info as MLS, but it helps guide the appraiser, especially if they're not familiar with the area. Just like with a boss, if you make their job easier for them...