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Chris43

How do you handle it when the house depreciates?

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Another question...

 

Lets say you sign you tenant buyer up with a purchase price of 200,000 after a 2 year L/O. In 2 years the house has depreciated 10-15%. Is the t/b still out the option consideration money if they choose not to take on a house that is worth less than what they agreed to? How do you handle this?

 

 

Thanks again,

 

 

Chris

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Another question...Lets say you sign you tenant buyer up with a purchase price of 200,000 after a 2 year L/O. In 2 years the house has depreciated 10-15%. Is the t/b still out the option consideration money if they choose not to take on a house that is worth less than what they agreed to? How do you handle this?

If a t/b chooses not to exercise his option, he will lose his option consideration. That's a risk he takes. The risk that the seller takes is that the home goes up in value of over the 2 years and he could have sold it for more than the $200K. The t/b always has the right, at any time during during the term of the lease, to renegotiate the purchase price of the home.

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Chris, what MG said. Both parties are accepting the reality of appreciation or depreciation when doing these deals. That's out of everyone's control.

To answer your question regarding the option consideration, yes, if the option is not exercised for any reason it is not refundable under the terms of the agreement. Specifically, we have a financing disclaimer in the Option to Purchase Agreement, also, which says that the availability of financing is solely the responsibility of the t/b.

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Chris, what MG said. Both parties are accepting the reality of appreciation or depreciation when doing these deals. That's out of everyone's control.

To answer your question regarding the option consideration, yes, if the option is not exercised for any reason it is not refundable under the terms of the agreement. Specifically, we have a financing disclaimer in the Option to Purchase Agreement, also, which says that the availability of financing is solely the responsibility of the t/b.

 

Yeah but what do you do if the house depreciates past the point that it won't appraise and a mortgage cannot be obtain no matter what? Even after credits are applied, the TB has to put some down on the mortgage. Those don't count as down payment so unless it has REALLY depreciated, you should be able to get a mortgage, correct? Or have you ever seen it where the owner will take a second mortgage for a small amount that the TB may owe towards the original price and will a Mortgage broker even allow owner financing in this case.

 

Lots of questions, sorry...

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Depreciating real estate is not a rare species these days. If a property's value falls below the agreed to option price, there are a few possibilities that can arise:

1) the homeowner can agree to lower the price to the appraised value

2) the homeowner can carry back a second to make the deal work

3) the t/b can come up with additional cash

Those are off the top of my head. The bottom line is if both parties want to deal to fly they will strike a happy medium.

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2) the homeowner can carry back a second to make the deal work

 

 

you mean if the sales price were 100k and now the bank will only lend 90k due to reduction in value, then the seller would lend the 10k to the t/b on a private note? like owner financing or something similar?

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2) the homeowner can carry back a second to make the deal work

 

 

you mean if the sales price were 100k and now the bank will only lend 90k due to reduction in value, then the seller would lend the 10k to the t/b on a private note? like owner financing or something similar?

Exactly.

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