The bad banks are at it again! Buyer beware!!!!
I received an email that has me very concerned for my clients and investors. I thought I would share it with you. First let me set how we got to the email. It’s a little long but stick with me.
A client and I viewed 16 properties one Saturday. In today’s market a good business tool is to contact each listing agent to confirm that the property is still available (you see, some Realtors are too busy to change the information on the Multiple Listing Service MLS). After several hours on the phone to confirm the status of the property and arrange appointments we were set to go look. We narrowed our list to 3 properties that would work for my client. We wrote our offers. I faxed the offers to the agents and emailed them to confirm they received the offer. In my email I asked them to confirm receipt. Only one agent could respond and confirm receipt!
Now that agent wanted my client to get a pre-approval letter from a lender that she recommended. We see this on many listings. Any of you that have gone thru the pre-approval process know that it requires a great deal of time and effort on both your part and the lenders part. My client called the lender who, of course, tried to move my client to use him as his lender. After a heated discussion we received the pre-approval letter and submitted it with our offer. Now this house was listed at $110k. My client really liked the home and offered $130k with the seller paying up to $6,000 in closing cost. This is approximately $70 a square foot. A great deal for a home built in 2005. But then I received the following:
Please be advised that the bank priced this property according to its BPO and appraisal. Since your offer is above asking price, please do your due diligence as to appraised value and have your clients sign the attached addendum acknowledging that this property might not appraise for their offered price. I will need this addendum back together with the multiple offer acknowledgement, and proof of funds for amount offered above asking price before I can submit your client’s offer to the bank.
So what we are now told is, you have no appraisal contingency! If you are a buyer you must show proof of funds for the difference of the asking price and your offer price. Most entry level buyers are using FHA or USDA loans that require 3% or less down. The next step will be to require you to put the money in escrow in case the appraisal does not meet your purchase price. This puts many buyers life savings at risk! BPO is an acronym for Brokers Professional Opinion. The bank pays $50 to $100 for the letter. Unfortunately most times the letters are done by agents who are hungry for the listing. I have asked several appraisers and not found one that has done work for a bank to establish value on a property for sale! In short, the BPO is not necessarily the market value but the price the agent thought it would sell quickly for. Licensed appraisers charge $300 to $400 to do a professional appraisal but the banks have chosen to go this route! If you are in investor you have no idea of how much cash will be required (other than a total cash purchase) to complete the purchase.
Be very careful not to get into a deal where you may be agreeing to purchase something for more than it’s worth! The appraiser is the professional to set value. Don’t give up your right or your money to meet the banks requirements!
The seller in this case is Bank of America. Many of you are aware that B of A bought Countrywide. This is one of the largest lenders. If they have gone down this path, the other banks will follow.
Bob Armstrong
Broker
AFG-Realty
