Financing Contingency Question

[pjs4x4]

I was just thinking that most contracts have the financing contingency where if the buyer cannot obtain financing, the agreement is usually terminated and deposit is refunded back to buyer. But what if the appraisal comes in low? Say the home takes a few months to build and the real estate market takes a dive during that time. What does the builder usually do at that point? I know there are 2 options (or more that I did not think of) where the buyer walks away via financing contingency or the builder lowers the purchase price on the contract. Seems like the former is what usually happens but how often would a builder lower the purchase price?

What if your own outside lenders says no go to higher purchase price than appraised value, would the builder preferred lender just "magically" have a purchase price appraised value and do the loan? I'm curious as to how that all works. Thank you for your information. 

 

[BruinDoc]

I think with new construction the financing contingency is not really applicable.  I have never heard of a deal falling apart for a newly built home due to under appraisal.  That's not to say it hasn't happened, but I haven't hear of it.  Because of the phase releases that typically increase in price from phase to phase I think this is highly unlikely.  I guess if the market cratered in a precipitous fashion it could happen, but then again we'd all be screwed (economy, stock market, housing market, etc.) if it happened that quickly. Our newly-built home appraised for several hundred thousand more than the contract price and I thought that was a bit comical. I think the sales office can help support the contract price by providing details of selected options/upgrades as well as current pricing sheets.  I think if new construction homes were to have trouble appraising that would be catastrophic for all of these new neighborhoods being built now and in the future. While LOs cannot contact appraisers, I'm sure appraisers are not in the business of killing deals in newly built neighborhoods

 

[dethman]

My sister bought new construction which failed to appraise for the agreed upon price.  As it was a loan,  the builder had to drop the price about 30k in order to keep the deal going.  This was not in irvine,  but yes,  it happens.

Edit:actually she just told me it was 50k.

 

[eyephone]

My sister bought new construction which failed to appraise for the agreed upon price.  As it was a loan,  the builder had to drop the price about 30k in order to keep the deal going.  This was not in irvine,  but yes,  it happens.

Edit:actually she just told me it was 50k.

In OC?

 

[dethman]

In OC?

LA county.

 

[lnc]

We have a discussion while back that the appraiser hired by the preferred lender will somehow appraise your new home exactly the amount you are paying for. 

And if that appraiser come back with any value less than the full asking price, he will never get another job again with any of the builders in this area.

 

[gasman]

We have a discussion while back that the appraiser hired by the preferred lender will somehow appraise your new home exactly the amount you are paying for. 

And if that appraiser come back with any value less than the full asking price, he will never get another job again with any of the builders in this area.

This.