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Always Have a Contingency!


A few years ago, when the market was red-hot, real estate agents were forced to present their contact in the strongest light possible. Often times this included “no contingency contracts“. Of course, this is not always the best thing to do, but that was the way the market was back then.

Today is different. Much different. But, unfortunately, a lot of agents are still operating as if the market is still 2005. It amazes me at how many contracts we are seeing in our loan files without financing contingencies! This is crazy! The year 2009 is much different than 2005. Not only have the credit and lending markets severely tightened up the availability of funds, but we also have had many regulatory changes. The largest and dumbest change affecting everyone in the industry is the new HVCC appraisal rules. Not only does it affect lenders, but it affects agents, buyers, and sellers.

The HVCC dictates a hands-off policy for lenders and brokers. Thus, we can no longer choose the best appraiser for the neighborhood, talk to the appraiser, or even discuss comps with the appraiser. Because of this ridiculous HVCC rule, we are seeing a lot of bad appraisals. And one of the worst results can be a lower value when the market actually still supports the higher value.

Just this week, I have seen the following deals blow up and need to be re-worked:

1. Refinance – original appraisal was $560,000. We had to order new appraisal under HVCC rules. New appraisal value, $450,000!

2. Purchase – Purchase price: $440,000. Appraisal value: $410,000 – after waiting 12 days, the appraisal finally came in one day before the proposed settlement date!

3. Purchase – Purchase Price: $280,000. Appraised value: $265,000.

Agents, please do not exclude financing contingencies. It does not matter what any lender tells you – we all have to work under the same rules for conventional loans (and some lenders are starting to require HVCC for FHA now too!). This is a reality that is affecting all of us everyday. This is a reality that will affect you too!

Under the new rules, it is imperative that you put the financing contingencies back into contracts. To not have a financing contingency is gross negligence in your implied duties of care  with your written agency contracts. Please remember to protect your client!

And while we are talking about this subject, please go here, and let your voice be heard!  http://www.hvccpetition.com/

June 11, 2009 by · Leave a Comment

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About Doug

Doug is a mortgage professional with over 14 years of experience in the industry. In 2005, Doug founded Jacob Dean Mortgage, Inc. and sold the company in 2008. He is still actively involved in Jacob Dean Mortgage as the Vice President of Operations focusing on compliance, licensing, and legal matters. Doug's other passions include flying and aviation. Doug is married to Michele and has two boys, Jacob and Dean, hence the name of the company!

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