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bpmiller2

Adding a contract addendum

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I have a few potential CAs that are in the works, however, on two of them I feel the homeowner is setting their purchase price a bit too high. I am worried that when the tenant/buyer goes to get financing that the appraisal will come in below the purchase price. At that point, I am not sure what would happen between the homeowner and tenant/buyer, but I want to avoid any possible problems for myself down the road. Would it be possible to add an addendum to the contract stating that if the appraisal comes in lower than the agreed upon purchase price that the appraisal price supercedes the original price? Also, should the addendum state that if the seller believes the appraisal to be inaccurate that they can order a new appraisal at their own expense? And lastly, can anyone help me word this so that it sounds professional enough for a contract?

 

Thanks in advance for your help on this!

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Here is just my two cents don't do deals with people who overprice their houses it will take too long to market. Also try to get a decent discount over the depreciation rate in your area then you don't have to add an addendum to your contracts. Disclose everything about the deal to the TB tell them that there is a risk that the purchase price may go lower than the agreed upon price in the contract and that they will have to deal with the seller if this happens.

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Guest jvmccall

Todd Toback has a "Price Protection and Family Lifestyle Guarantee" that he uses. See attached. He basically promises the tenant-buyer that if the house falls in value, they can use the option deposit as a credit on another house he has in his inventory.

 

I have not used this. He is in the Southern California market where prices are falling, and he has had good success using it. Do your own due diligence.

 

What I have done in the past if this issue is brought up & I think the house might be at the top of the market value (and if it is in a high priced neighborhood), I have added language in the contract that if the tenant-buyer's bank won't appraise the house for the option price, the tenant-buyer and seller can each get their own appraisal. If the appraisals are more than 10% different, they must get a 3rd appraisal. They throw out the lowest one. They then take the average of the two appraisals and that would be the new option price. The seller would also have a stop-loss limit (of maybe 5-10% below the option price) where the seller can say forget it. The seller & tenant-buyer would then have to extend the lease option period another year & negotiate a new price. If the seller is willing, you can add language that refunds the tenant-buyer the option money if they can't reach an agreement. I would not suggest this though.

 

Joe

Price_Protection_and_Family_Lifestyle_Guarantee.pdf

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Miller, you are using my paperwork, correct? If so, there is already a financing disclaimer clause in the Option To Purchase Agreement, (Page 2, Paragraph 12). It says that availability of financing is not guaranteed and is not a condition of performance. There is no need to add anything else or for any kind of addendum. That Todd Toback document is not one I would go anywhere near personally. You have to understand that the more sentences you write, the more paragraphs you include, the more pages and documents you require to be signed, the greater the likelihood the the homeowner and/or the t/b wants someone, an attorney in all probablity, to review things. As soon as that happens the deal is dead. Keep it simple. I know some folks like to equate complexity with brilliance, but I prefer being a simple dullard.

The bigger question, though, is why are you accepting deals with prices that are likely not to be accepted by the marketplace? The homeowner is not the one who should be setting the price. That would be you, and after doing a market analysis of the subject property. I've yet to meet a homeowner who doesn't have an inflated opinion of their property's worth.

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Guest jvmccall
Miller, you are using my paperwork, correct? If so, there is already a financing disclaimer clause in the Option To Purchase Agreement, (Page 2, Paragraph 12). It says that availability of financing is not guaranteed and is not a condition of performance. There is no need to add anything else or for any kind of addendum. That Todd Toback document is not one I would go anywhere near personally. You have to understand that the more sentences you write, the more paragraphs you include, the more pages and documents you require to be signed, the greater the likelihood the the homeowner and/or the t/b wants someone, an attorney in all probablity, to review things. As soon as that happens the deal is dead. Keep it simple. I know some folks like to equate complexity with brilliance, but I prefer being a simple dullard.

The bigger question, though, is why are you accepting deals with prices that are likely not to be accepted by the marketplace? The homeowner is not the one who should be setting the price. That would be you, and after doing a market analysis of the subject property. I've yet to meet a homeowner who doesn't have an inflated opinion of their property's worth.

I totally agree. Keep it as simple as you can. I only bring up what I talked about above when the seller or tenant-buyer insist on having something in the contract about it. Otherwise, I don't bring it up. At the same time, if the seller's price is too high, I tell them so. And I won't do the deal if I think a tenant-buyer would never get a bank to appraise the home for that much.

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