What’s Most Overlooked in an Offer to Purchase?

27 Feb

Metro®Boston, Publication Date: February 22, 2012
By: George Warshaw

You’re out shopping for a new home. You’re not too worried about getting or needing a loan to finance your purchase.

You submit an offer, it’s accepted, but the appraisal comes in lower than your offer. Can you cancel your purchase or renegotiate the price?

Quite often, no!

Buyers who finance 80% or more of their purchase price have a built-in protection.  The bank will turn you down if the appraisal comes in less than the purchase price.

Borrow more than 80% of the value of the home and the bank has too much risk.  80% LTV (Loan-to-Value) is considered the maximum safe-lending benchmark.

But, if you finance less than 80% of your purchase price, you may have no safety net. Let me explain by example.

Buy a home for $500,000, but request a loan for only $250,000 (i.e. 50% LTV). You may care if the appraisal comes in at $400,000, but the bank won’t. That’s because the appraised LTV is still well below the 80% safe-loan benchmark.

The time to protect yourself is in your offer. Ask your broker or attorney whether your offer should be subject to an appraisal of no less than the purchase price of the house.

It may protect you in the end.

© 2012 George Warshaw.

George Warshaw is a real estate and estate planning attorney in Massachusetts.  He represents buyers and sellers of homes and condos in Massachusetts, and prepares wills, trusts for individuals and families. George welcomes new clients and questions at metro@warshawlaw.com.

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Legal Advice: Laws, and court decisions interpreting them, change frequently and this article is not updated as laws change. The content and information contained in this article is neither intended as legal advice nor shall establish an attorney-client relationship.

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