All Forum Posts by: Sam Leon

To answer some of the questions, and ask some more.

(1) the property is a condo, and is being financed, and i just went through their process a few weeks ago, responding to the lender's condo questionairre, provided master insurance information, prepared condo financial statements and estoppel etc...all of those were done as a person.  Now, the request to sign an addendum to change buyer name from a person to an LLC.
(2) I will check the LLC to see if the person who is the buyer is tied to the LLC.  However that can change at any time right?  Even though the contract stated that this is not assignable, bu changing it to an LLC it makes it technically assignable just by transferring control of the LLC from John Doe to Julie Smith right?  Or the LLC is a joint investment of John, Julie, Bob and Mike right?
(3) My HOA has approved the sale to the buyer based on the personal name, had to pay an application fee plus do a background check including criminal, credit etc...and the estoppel was issued based on the idea this is a person who is buying.  If changing to an LLC I believe I will have to re-process the HOA application as an LLC, and if the LLC is now a different person or control additional people, who knows what would happen.  If my HOA needs to re-evaluate, I cannot believe the lender would not require to go back through underwriting?
(4) If the loan was approved based on a person's name, and now with a name change the loan is denied, how does the loan contingency work?  Can buyer walk away because the loan gets denied based on a name change?
(5)Yes buyer is asking to sign an addendum for the name change, but it is not as simple as a name change, it will have a ripple effect I think.
(6) I don't think there is an loan approval of the LLC, the loan is approved to the person, IF i signed the name change addendum, then the lender will react to the name change, I am not sure at this point I can ask the lender "hypothetically if buyer name changes from John to an LLC will the loan approval still stand?"

Selling a property and went under contract in early July scheduled to close in two weeks.

So far all contingencies have been met and suddenly the buyer wants to sign an addendum for a name change from "John Doe" to "whatever LLC".

Since the buyer is seeking financing from a conventional lender, and I think most residential lenders do not lend to LLCs, I am thinking the name change will cause the loan to be denied, and my attorney suspects this may be a way for the buyer to seek to exit without any penalty.

It seems unusual to do a name change like that in the last minute, any thoughts on the best way to navigate this

Quote from @Stephanie Medellin:

Just reading your question again -

Say the buyer is still paying $250,000 and putting $100,000 down.  Originally that was 40% of the property value, but now the property value is only $235,000.

$15,000 of the $100,000 is now going to cover the difference between the value and the purchase price, since the lender won't lend on that.

Now the buyer has $85,000 left of the original $100,000.  That's 36.17% of $235,000.  So the buyer's down payment is 36.17%, not 40%, and he's paying the $15,000 difference in cash.

I hope that makes sense.

That make sense, but the confusion I have is since I have always assumed the 80% LTV ratio, I thought that when 80% of the appraised value (188K) is higher then the financed amount (150k), then there is no issue, but apparently there still is.

On hypothetically, if the purchase price is 250K, and the buyer is paying 90% down, which would be 225K, and the property appraised to 235K, the bank would still ask the buyer to put up 225K plus the 15K, making the total to be 240K?

Let me answer with what I know.

Regarding the comps, there is no other sale of similar properties near by except that one which happens to be this single sale at the end of June 2023, and we knew a low sale price may be trouble for the appraisal.  I do not have visibility to the buyer's appraisal report so I don't know how it arrived at that number, my guess is that single sale was the biggest influence.  As a matter of fact, there are a few other similar properties listed nearby in addition to mine, all listed at prices higher then my contract price, and they all went from UNDER CONTRACT to ACTIVE again within the last week, and my guess is, the low sale price of this single unit, affected not just me, but it is what it is.

Right now, the contract numbers look as follows:

PURCHASE PRICE: 250,000

INITIAL DEPOSIT: 25,000

ADDITIONAL DEPOSIT: 75,000

FINANCING: 150,000

My understanding is the lender will only approves 80% of the appraised, so that will be 0.8*235,000 = 188,000

Since 188,000 is less than the 150,000 the buyer is asking, the appraisal should not be a show stopper.  I accepted the offer partly because of the high deposit, because I thought that makes the offer a strong one, less likely to run into a lending hurdle.

But reading what I am reading here, that regardless of the down payment amount or percentage, the lender requires from the buyer the difference between contract and appraised value, the 15,000, so the buyer has to pay 100,000 + 15,000 = 115,000 at closing.

If that is the case, then it would be better for the buyer to not use such a high deposit, instead put down 10,000 for initial deposit and another 20,000 for additional deposit, ask to finance 220,000.  When the appraisal comes out to 235000, and the lender says I can only approves up to 188,000 and you need to make up the difference with cash and put up an additional 15,000, then do it at that time it would still be less than the 100,000 he already put into escrow, right?

Unless the high deposit was done for a reason I don't know about, such as favorable rates, or bad credits, or other whatever, and the appraisal coming in low represented added risks.

I have a situation where the property I have listed appraised below contract price.

This is a condo unit in south Florida with an HOA.

As an example, the contract price is 250k, there is an adjacent condo that recently sold for 235K.  There is no other recently sold data point to use, that condo unit is the only single data point.  The buyer's lender ordered an appraisal, it came back with the 235K number.

I had mentioned to the appraiser that the adjacent unit that sold for 235K sold for that number for good reasons. The owner is in Europe and wanted to get out quick, it has deferred repairs and maintenance issues, it was listed on the MLS and sold to a cash buyer sight unseen in less than one day. But the appraiser did what he did and came back with the same price. Fine.

My understanding with conventional lending is, if the appraised price is 235K, then the lender will typically approves up to 80% of that which is 188K, this means the buyer will have to pay 62,000 of down payment to make up the difference to the contract price.  In this case, the buyer is paying a high down payment of 40% (100K) on the contract and asking 150K from the lender, which in my mind should cover more than the difference between the appraised value and contract price.

But I was told that is not how this works.  In this case, the lender has asked the buyer to put up an extra $15000 (the difference between contract and appraised value), which prompted the buyer to ask for a price reduction because of the extra "out of pocket" cost to buyer.

I am trying to understand this, because I did some asking around, and no one can explain this to me, why would the lender ask for extra money from the buyer to cover the difference if the buyer already has a high down payment that more than cover the difference?  The explanation I got is this is a complicated algorithm and unrelated to the down payment.  So I guess I am trying to understand how this works or is this just voodoo math?

Bo, thanks for the explanations.  It helps.

In this case, the buyer's lender is asking the HOA to add equipment breakdown endorsement to their master policy for the building.

The master policy for the building covers a number of perils - fire vandalism windstorm etc... and it covers the building structure and common elements.  We do not have a club house.  The only "equipment" that would be HOA responsibility would be the washers the dryers that are shared, two security lights, and the common electrical panel.  There is no other equipment.  I can imagine a large building with many units having a club house as you said solar panels, HVAC, pool equipment, spa etc...but we have none of that.  Now each unit has it's own electrical panel, HVAC, range, refrigerator, dishwasher etc...but those are unit owner responsibility if they are inside, and if they are outside (like an AC compressor) they are limited common elements and are excluded from HOA coverage.  So I don't think there is any real equipment for the HOA to cover except the washers/dryers.

Can someone help explain to me what an equipment breakdown coverage is?  I mean I Googled it and read it and still am unsure what it really is.

We own a condo unit in a small building of 8 units. There is an HOA. The HOA carries a commercial insurance policy for the building. The individual homeowner then buys their own insurance to cover stuff inside their own units. My understanding is if there is a fire, and the fire damages the building, the structure would be covered by the commercial policy issued to the HOA, but if the fire also damaged furniture in unit #6, then it will be up to whatever insurance the owner of unit #6 John Smith covered.

So one of the units is being sold right now and the mortgage company of the buyer is requiring equipment breakdown endorsement coverage to be included in the current HOA commercial policy. I don't know if this is typical but that's what is required for the loan to be approved and so we (HOA) has reached out to the insurance agent to ask what would be the cost to add this coverage and not even sure how this is typically addressed when an additional coverage is required by the lender of a potential buyer of one of the units.

So I googled equipment breakdown endorsement and it seems to suggest this is to protect the equipment such as appliances or computer of the business (in this case the HOA) in case something happens like a fire or power surge. Since it specifically stated "business" and we have a commerical policy for the building, then I assume, this means only "business owned equipment" right? That would be equipment that the HOA owns, such as the shared washers & dryers, the security lights, may be the electrical panel of the building correct? Does it extends to the equipment of the individual units such as say a power surge and it damages the HOA washer and dryer, but it also damaged unit #4's air conditioning unit and their refrigerator, I assume the individual unit equipment won't be covered or would it? There are nine electric meters and disconnects in the electrical room, one for "common" (HOA) and the other eight for each unit, so in this context, the equipment breakdown endorsement will cover the common disconnect but not the other 8? Or am I totally confused?

What are your thoughts on plug in scented oils?

Personally I do not have a problem with it, until I have a tenant that went a bit overboard with it and put it in every room, sometimes different scents on different walls of the same room.

Then you end up with them plugged in behind a sofa, or against a shelfing unit where you no longer see them.

Then sometimes the oils run dry and she forgot to refill, for days.  When that happens, the plug gets hot and the receptacle and the wall directly above it get black sticky smudges, like these.

Can a plug in scent device, when running out of oil for days, still burning to the point of staining the receptacles and walls, pose a safety risk?  Can it overheat the receptacles and connected wiring?

Some things are emergency items.  Air conditioning in the summer, heat during the winter, broken windows or doors, refrigerators, drain blockage etc...are all emergency items where I am and should be treated as such.

If HVAC companies are booked three weeks out, then you need to find one that can come ASAP.  I get that sometimes there are pre-established vendors like a brand new AC unit installed and still under warranty by the installer, who happens to be closed on weekends when you need them on a Saturday, and that happened to me a few times and had to call someone else to come, and a lesson learned so I stopped buying AC systems from companies who are only open M-F.

The moment you told your tenant it's going to be three weeks out this whole thing went side ways.  I would say you need to understand "bending over backwards" should not enter into the equation of tenant satisfaction.  They just want the issue resolved, and do not care (and should not) the level of effort you went through to make it happen, why can't you get it done right the first time?  The multiple trips you made, the window units that didn't work, and the new condenser that froze, to you seems like lots of extra effort and trips to make things work and should have earned points towards "effort" and "bending over backwards", to your tenants those are just a demonstration of wasted time and effort translating into incompetence and carelessness.  This is a result driven business and your tenants expect more.

Quote from @Brad S.:

You're on the right track and let me give you some more insight. I am a longtime appraiser, so I have a wee-bit of knowledge and experience regarding this.

Here's where you may want to focus on:

First Sale -
*All cash - this may've caused the seller to accept a lower sale price, knowing that an appraisal and loan contingency may not have been involved, therefore, reducing the uncertainty of the deal falling apart. You may ask the seller if there were any concessions offered to the Buyer (i.e. repair credits, etc). Ask them if there was an appraisal contingency, just to verify if that may have contributed to the seller's motivation to sell for less. Actually, ask them if there were ANY contingencies.

* Low marketing time - less than 1 day - this could be evidence of a few factors: the offer price being below market value, the seller being atypically motivated to sell, buyer/s being atypically motivated to buy, and/or the unit was not given enough time on the "open market" for the market (buyers/sellers) to determine fair market value, thereby, contributing to a below market price sale. 

* Condition/Repair Issues - point out the inferior condition and "deferred maintenance" of the unit, to assist in the explanation of why it sold below market and why yours is worth more, since it is in superior condition. Paint the picture of the unit being in very poor condition, etc, and of course, photos, etc, would help. I would maybe do both a video and photos - you want to given them actual evidence they can either put in their workfile or their report to justify their opinion (i.e. inferior appeal of the comp unit), and a video is probably not the best for that. But, it may be good to show the appraiser (if they are interested), to prove you are not making this up. But, I would be an succinct as possible, just provide the important info, otherwise it may be overwhelming -there's a lot of other info for us to review and go over than just those comps. 

Second Sale - NO marketing time

The same as above except you can explain how this one was NEVER marketed to the open market, never made it on the mls, etc. A good appraiser should see that unit has sold, even if it wasn't on the mls, but I would not be surprised if they do miss it.

Also, interview the agent for those sales and ask if there was any atypical motivation from either buyer or seller, and see if they will offer any info on specific repair issues, etc, many times they will have some insight which can be very beneficial.

FOCUS ON 
1) Buyer/Seller motivation
2) Limited Market Exposure
3) Inferior condition and/or quality

You want to provide as much FACTUAL EVIDENCE to help the Appraiser justify their opinion, that those sales are below market. And if you waiting a year, they may still use 1 or both of those sales, since they are in the Subject project, but they may have an easier time with a higher value, since they may be able to rely on newer sales, but that is no guarantee. 

******************
Here is part of the definition of Market Value that will be used. 

• *buyer and seller are typically motivated;
• *both parties are well informed or well advised, and each acting in what they consider to be in their own best interest;
• *a reasonable time is allowed for exposure in the open market;
• payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
• *the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Thank you so much for the detailed reply.

I will go ahead and try to get some pictures and videos if possible to document the other property's conditions at sale.

I just don't know if the buyer's hired appraiser will talk to me.  I do think there is no harm to try and provide information that may be relevant to his client.