Latest / The Jon Sanchez Show / The Buyer Qualified-But The House Didn't
Transcript
- Jon G. Sanchez: Good Thursday afternoon to you. Welcome to the John Sanchez Show on News Talk780K, which it's a pleasure to be with you this Thursday. One more day to Friday. Hallelujah. I'm joined by my buddies, Mr. Aaron Clark of Edge Reality. How are you? Here we are. I had to boot him out. We had a bad connection. It's like you gotta reload, buddy. You gotta reload. So he'll be jumping back on here, Dwight Millardov, Aaron Clark, Edge Realty: Good, good. Missing our our friend Dwight. Where is he? Yeah. Nice. Jon G. Sanchez: Q Home Loans, of course. But here we are, Aaron. Thursday again. Blink Aaron Clark, Edge Realty: Yep. Jon G. Sanchez: of an eye, you're you're back with us. Aaron Clark, Edge Realty: Yep. Yep. Jon G. Sanchez: I love it, man. I love it. All right. Let me tell you what we have lined up for you this afternoon. Title of our show today, after the stock market recap. The buyer qualified, but the house didn't. The buyer qualified, but the house didn't. What an interesting way to look at real estate these days, Mr. Clark. What an interesting Aaron Clark, Edge Realty: Mm-hmm. Jon G. Sanchez: way. Right. And what what you're going to be so surprised about, folks, is You've got good credit. You've got verified income. Dwight's issued you the mortgage pre-approval letter. Everything's looking great. You're excited. You call up Aaron. You're like, let's go shopping. Everything's all lined up. Aaron negotiates a great deal as he always does. Your offer is accepted. And then the lender, Dwight Millard, says, Nope, can't do it. Hey Dwight, welcome back. Glad you're here. We need you for today's show. We need you. Thank Dwight Millard: Thank you, John. Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez: you. Admi, where are you there? so anyways, so Dwight, as I was just telling them, you know, we just announced our topic, the buyer qualified, but the house didn't. So again, good credit, verified income, mortgage pre-approval by you, Dwight, offers accepted. Then you, the lender, come back and go, nope, sorry, Mr. Smith, can't do it. Not because of you, Mr. Smith, but because of the house. So today, Dwight Millard: Mm-hmm. Jon G. Sanchez: Aaron and Dwight are going to reveal the hidden issues, things like appraisals, insurance, HOAs, and property problems that can kill your. financing. Dwight, you Dwight Millard: Mm-hmm. Jon G. Sanchez: are one of the most kindest gentlemen that I know on this earth on this earth. I would imagine it cringes and and irks you and upsets you when you have to give this kind of news to a borrower. Am I right? Dwight Millard: Yeah, John, and and and sometimes it they take it better than most, but yeah, yeah, because because Jon G. Sanchez: Do they? I'm shocked. okay. Dwight Millard: i i at the end of the day, especially like with a veteran loan, we're really looking out for their best interest. But you you know, to Jon G. Sanchez: Absolutely. Dwight Millard: your point, there's so many variables inside of this transaction that could generate, you know, that kind of alert alert, you know, that i from an Jon G. Sanchez: Yeah. Yeah. Dwight Millard: underwriter or appraiser. You know, something that you just didn't even know was lurking. So I mean, it's at the end Jon G. Sanchez: Absolutely. Dwight Millard: of the day, we're just trying to do everybody the right thing and you know, if it comes up. So yeah, yeah. But it's still a surprise, still a sucker punch. Yeah. Yeah. Jon G. Sanchez: Yeah, of course. Of course. That's absolutely. So we're gonna yeah. absolutely. Absolutely. Aaron, you wanna you wanna add anything anything to that since you were the one that found in the house that just blew up on and I was kidding. Aaron Clark, Edge Realty: Yeah. mean, my my whole thing Dwight Millard: Mm mm. Aaron Clark, Edge Realty: is when we start hitting the the ground with boots on the ground running, I try to set the expectations on the front end by educating people as to Jon G. Sanchez: Yes. Aaron Clark, Edge Realty: the pitfalls that we're trying to be careful of. And I know when we walk into a house, if they if they're an FHA borrower, for example, and we're walking in and we're putting a you know, spitball in a plan. what the pitfalls are gonna be or what the potential issues might be, whether it's condition issues, appraisal issues, location issues, whether or not it's gonna be an issue with the HOA. Usually in most cases I can prepare them ahead of time. And then they can decide, knowing Jon G. Sanchez: Mm-hmm. Aaron Clark, Edge Realty: the risks, fifty fifty shot, you wanna take a shot at it or do you not want to take a shot at it? You know, how bad do you want this place? Jon G. Sanchez: Right. Right. Right. Let me quickly ask you guys, then I'll get to the stock market side. Something that's popped into my mind. Guys, how far into the process, and I it's probably more towards you, Dwight, how far into the into the the process is i is you know, do you have to give that bad news? Is it after the underwriter looks at the deal? 'Cause you've already pre approved them in our example. So is it when it gets down to the underwriter who's then putting the pieces of the the real estate transaction together? Where where exactly is? Dwight Millard: It well they can make a discretionary call. Yeah, they can make a discretionary call, John. An underwriter Jon G. Sanchez: They can. Okay. Dwight Millard: can say, Hey, I don't like this on an appraisal or I don't you know, via picture, they can ask for things and and and you know, over the years I've had some ask and actually it's come out to the benefit of the buyer because it was a problem. So yeah, so it's Jon G. Sanchez: Right. Dwight Millard: it but usually to your point, it's happening at that point. You know, the appraisal, the appraisal's in. You know, maybe there's some little issues or th you know, but yeah, it's it's at the tent the tenth if not the eleventh hour, John, where this usually comes to fruition. Jon G. Sanchez: That's I was afraid you were gonna say that, yeah. Right Dwight Millard: Mm-hmm. Jon G. Sanchez: right right at the the eleventh hour scenario. Dwight Millard: Yeah. Jon G. Sanchez: So then Aaron, you get that phone call back from the from the the buyer and or Dwight, and now you gotta start the whole process over again. Right? You gotta pull the offer and yeah. Aaron Clark, Edge Realty: Yeah, I mean we have to revet everything and pull the offer. I mean, that's where that's where experience comes in. Cause one, we can usually tell if something's gonna happen before it even happens. And Dwight and I have Jon G. Sanchez: Kenya. Okay. Okay. Aaron Clark, Edge Realty: been doing this for a very long time. We know, and we know if we're taking a gamble and that's what the buyer wants. But if it does become an issue, that's where the language within the offer is so important so that we can get Yeah. Exactly. Cause we Jon G. Sanchez: I was just gonna bring that up. Now we're gonna come back to the contract, which I hope you guys Aaron Clark, Edge Realty: We need to have that in Jon G. Sanchez: touch on, yeah. Aaron Clark, Edge Realty: there correctly so we can get that per that buyer's money back so there's little to no risk to them losing anything. Jon G. Sanchez: Can can you do me a favor, because we didn't have it in our outline. Can you do me a favor, Aaron, and make sure that you bring up how important that language is and some of the language that Aaron Clark, Edge Realty: Yeah, absolutely. Jon G. Sanchez: people need to make sure that if they're not, you know, using you as an agent or Corey as the broker, that they talk to their agent, make sure that yeah, this is this is what's in there. Cause boy, I could as soon as you brought that up, I got goosebumps. I'm like, I could see where if you had a young or an inexperienced or an agent that's not paying attention, that could really, really blow up in your face, goodness. Aaron Clark, Edge Realty: Big time. That's when lawyers like to get involved. Jon G. Sanchez: I mean in the buyer's face. Yeah. That's yeah. I would imagine. Dwight Millard: And and John and John, in this process, there is a big difference between like Aaron was saying, a government loan and a conventional loan, believe it or not. Jon G. Sanchez: Okay. Dwight Millard: especially like an FHA, you go get an appraisal and there's an issue or whatever, that appraisal sticks with that property for 90 days. So I mean, yeah, so there's I mean, you can't just go, you know, order appraisals all all day long. So there is a difference there. Jon G. Sanchez: Yeah, yeah. Okay. All right. All right, boys. Well, I'm gonna s fly through the stock market side of things because we had a lot of things to talk about. I'm gonna start my my review of today's stock market activity by, you know, the the the boys can can see me, of course. I'm scratching my head right now, so just visualize that. That that un unsightly sight. Because that that to that to me really summarizes today's activity. Here's why I'm saying this. We go back to my first update at 523. Dow features were up 142. NASDAQ features were down 388. Right before the opening bill, Nasdaq features are about the same, down 389. But what happened between that 523 update and that 653 update was the release of PPI, the producer's price index. I have never seen the stock market react in a favorable fashion as it did today, from what I'm about to tell you. Listen to the PPI numbers. Again, inflation on the wholesale side. Remember, yesterday we got we got the the CPI, which again is the the inflation on the retail side, and the market freaked on it. But today we get to the wholesale side. So what people don't realize is you have to go to the wholesale side first, and then that That transpires eventually over to the retail side, meaning the CPI number. So this PPI number is a precursor to what we're going to see in CPI. But what does the stock market do today? Stock market rallies on the news. Dow up 556. NASDAQ up, yeah, 20, but again, we were down 400. SP up 25. So overall, a good day. Listen to these numbers. PPI for the month of September, month over month, August to September, rose 1.3%. Year over year, up six point three percent. Worst number we have seen on a year over year basis going back to twenty twenty two. Strip out food and energy, get down to the core, up a half a percent month over month, up five percent for the year. Terrible numbers. This again, guys, is is a number where the first thing that should have happened is bond yields sort of should have surged as they did yesterday. But instead, what happened? Bond yields plummeted today. Now, this report compounded with yesterday's CPI is going to give the Federal Reserve a whole bunch of ammunition. Not saying they're going to do it for sure. We don't know yet, but it's going to give them a whole bunch of ammunition when they get together here in a few weeks for the interest rate decision meeting, right? Because now you've got two solid reports, right? And that meeting is going to be on October 28th, by the way. Now you've got two solid reports showing inflation is. Out of control, it's skyrocketing. And even again, you strip out food and energy. you're still, like I said, up five percent. But again, this is the wholesale side. So if the wholesale side's high, then you know what the retail side's gonna be high. So this this is a great precursor to what the CPI number is gonna show us when we get the the October data. Dwight, were you were you as baffled as I was at at the reaction to the bond market, which by the way, let me just throw that out there: 10-year treasury today down 10 basis points at 509 yield. Dwight Millard: Mm-hmm. Jon G. Sanchez: all the maturities were way down. Do I will tell us about the mortgage in a second? But were you as baffled as I was to the bond market reaction to this number? Dwight Millard: John, let me scratch my head too, because yeah, I I didn't understand Jon G. Sanchez: Yeah. Yeah, you're. Dwight Millard: it. I mean, it it it it was on par yesterday when that number came out. You know, the market I I mean, the bond market just got slaughtered yesterday. And then today I was anticipating the same slaughter and it went the other way. And you see you're going, I I mean, Jon G. Sanchez: Slaughtered yesterday. Yes it did. Me too. Yeah. Dwight Millard: John, is it a reverse psychology where they think this might be the top? I mean, are this is this is this the worst news? And is if the worst news is going to get better? Jon G. Sanchez: So you so s n well, so some are saying that you you have a valid point, some are saying this may be the top of the of the yield curve, you know, action. I don't believe that. Dwight Millard: Well you even said that. You have even said that. So I mean o okay, so I mean th that kinda's Jon G. Sanchez: Okay, so now we now now we go to the other issue, which this is another theory that that Wall Street threw out today. Okay, now it again our UL close of 509, but you know, yesterday was five nineteen. I've been saying this for many weeks, guys. You've heard this. The bond market is now becoming a very strong competing asset category against the stock market. Now, before any of you criticize me and go Well, yeah, stock market's one category or asset category, bond market's another. What I mean by my comment is it's it's it's a tug of ore. People look at the stock market, and you know, I'll just use historical averages. SP ro basically a 10% return is what it averages over history. Okay. If you can invest your money with the US government that it knock on wood has never defaulted, and like yesterday, you can get a 5.19% yield on it for 10 years, you know, you you're locked in on that unless you sell. People are going, Why do I want to take the risk of the stock market? Stock markets are very overvalued right now. We've got AI risk and so on and so forth. Let me just park my market or my money in in the bond market. Dwight, that was the second competing factor today. As many of the headlines were saying, Hey, you know what? Let's come in and buy the bonds, which of course drives the yields down. That's why we were down. I mean, the thirty year was down ten basis points, the two year was down five, the three year was down seven basis points, five year down nine. So right across the board, they were all down today. Dwight Millard: But but John, that goes to prove our theory and what we keep telling the audience is the Feds don't dictate the rates. I mean, this is exact yeah, no, no, but this is to to what you're saying. I mean, yeah, d Jon G. Sanchez: No, gosh, no. Yeah. No, I know. Yeah. Yeah. Dwight Millard: to what you're saying. So now all of a sudden, yeah, you you've got this other mentality going on. Well, that'll drive rates down just on its own without any government, any Fed intervention. Jon G. Sanchez: Yep, absolutely. Absolutely. And then I'll throw in real qu you know what I'll I'll cover it when I come back. I'm running late, but I want to I wanna bring up, remind me guys, I want to talk about core weave. And I touched on this on the show yesterday for those of you that that listen to the show or listen to the podcast. this was another factor that we're seeing going on. Aaron, I thought about you when I covered this, you being the AI nut like I am. what's going on with Core Weave and their bonds and how people are now thinking they're not gonna be able to pay back the bondholder on this one. So we'll touch on that real quickly and then we'll get to our topic. You the buyer, you're qualified, but the house isn't. We'll touch on that with Aaron and Dwight. Welcome back to the John Sanchez show on News Talk 780 KOH. We start talking about chili dogs during the break. I'm like, I'm starving. I didn't get lunch today. Dwight Millard: It's Jon G. Sanchez: man, that sounds so good right now. So good. All right, here's where you go. let's once again recap what happened on the market today. Very strong day. 556 gain on the Dow, 1.08% to a close of 52,177. So made up a little bit more than the loss of yesterday. NASDAQ up 20 points and the SP gained 25. So Once again, back to to core weave. the stock settled down today after a big sell-off these last couple of days. Once again, yesterday as I as I mentioned, mentioned this on the show. you know, they're they're obviously a major AI player. lot of lot of lot of money's invested with them, let's just say that. like Nvidia and a few other big players, et cetera. so as I discussed yesterday, they had you know, they issued two tranches of bonds. One was a 2032 maturity, and I think a 2035. Those bonds have been plummeting in value, which drives those yields up. And again, that is a bad sign in the world they're they're essentially junk bonds, bad sign because people are again starting to lose confidence that a company like Core Weave has the financial ability to pay money back because of everybody's fear right now about AI and is it gonna be sustainable? Is anybody gonna make any money and so on and so forth? Well, the stock finished up $3.91 today to $69.69. it was a 5.94% gain yesterday. Again, it was down 15%. And the reason it came back today is because Bloomberg reported that Nvidia's CEO Jensen Wong believes that Corwee's financial position is improving and does not require a financial backstop. So, yeah, somebody coming to right, Aaron, coming come. Aaron Clark, Edge Realty: Powerful words. Jon G. Sanchez: Powerful words. Yeah, yeah, yeah. Little little I wonder I wonder if he got a phone call from the CEO of Corey who said, Mr. Wong, can you please go on the Dwight Millard: Okay. Jon G. Sanchez: newswires and say we're okay. We're we're we're doing fine and our bonds shouldn't Dwight Millard: Is it how? Jon G. Sanchez: be you know they they jumped up to a fifteen percent yield. So yeah, Dwight Millard: Right. Jon G. Sanchez: it was yesterday for a short period of time, so crazy. But anyways. Other than that, like I said, oil was strong though. Market didn't pay attention. two dollar and eighty one cent gain, ninety seven ninety two a barrel. So it's amazing how again This as I said, something strange happened today. Dwight Millard: Mm-hmm. Jon G. Sanchez: Bond yields plummeted. Yeah, for no reason when we had this hotter than expected PPI number. Gold was strong, sixty one dollar and seventy cent gain, four thousand one sixty nine seventy, ten basis point decline on the ten yard yield of five nine. Let's talk mortgages, Dwight. Dwight Millard: Yes. So John, complete opposite from yesterday, 7.33 according to Mortgage News Daily, down 12 basis points on the 30-year fixed. Even better, John, the 30-year FHA 6.98, and your 15-year fix 6.98. So we got inside the seven. Here we go. I I I like it though. I mean that the, you know, that Jon G. Sanchez: Hey, sub sub seven. Sub seven. I like it. Okay. Dwight Millard: FHA was seven, almost seven and a quarter just what, a couple weeks ago. So, so that's Jon G. Sanchez: Yeah, yeah, yeah, absolutely. Dwight Millard: That's some movement, so we'll take it. That was fifteen basis point improvement on that FHA, so Jon G. Sanchez: Yep, absolutely. Well, that's great news, Dwight. And yeah, I know everyone was was quite surprised at that move today and and very very relieved to see that happening. Let's hope it holds, right? Let's just hope it that it holds. Dwight Millard: Well John, if you would have had the same thing today that you had yesterday, we would be talking probably what, seven, six, seven, six, two, three on the on the third year. Yeah. Yeah. So we Yeah. Yeah. Mm-hmm. Jon G. Sanchez: Yeah. Yep. Yep. Yep. Absolutely. It'd be it'd be way up there. Now getting getting close to that eight percent we keep warning about, you know, no doubt. All right, boys. Well, we're done on the stock market side. Let's get a head start on our real estate side. So again, today we're gonna be having a a really interesting discussion. Again, it's titled The Buyer Qualified, but the House Didn't. So Aaron is going to explain how you, the buyer, and if you don't use Aaron, you you and your agent. Can investigate properties before becoming emotionally and financially committed. Again, Dwight's going to explain what the lender must know about the house, how the loan program affects the property eligibility, which problems can be repaired, documented, negotiated, et cetera, and which problems may kill the transaction. So let's start on the first one, guys. The three things that must be approved. Dwight, this is your world. Let's start with number one, the obvious, the borrower. Dwight Millard: Yeah. Yeah. So John, it's this, it's this still big the three. The the it's the income, it's the assets, it's the debt to income. you know, those are the biggies, the credit score, as we've talked about for for years. But yeah, we're gonna we're gonna isolate the borrower out and make sure that everything falls in line, the DTIs are in order and employment Jon G. Sanchez: Okay. Dwight Millard: history and all that. So that's the first step. And they go, okay, Aaron, here you go. You know, Mr. and Mrs. Smith are ready to go. Here's your sales price limit, typically, you know. If you're going to go above that, let's talk and we do pretty good on that front. So yeah, so there there Jon G. Sanchez: Mm-hmm. Dwight Millard: you go. And then then then we already know the loan program typically. Jon G. Sanchez: Step two of the loan. Dwight Millard: Yeah. So we usually know the loan program based upon down payment, based upon their credit score, things like that. you know, your your biggies right now are conventional in governments, FHA and VA. But you know, you're seeing some jumbos come in this area quite a bit now, right? I mean, with the elevated home prices. And so you know, and then we know if it's an investment or primary residence, second home, those type of things. So when I when I hand Jon G. Sanchez: All right. Dwight Millard: it off to Aaron, it's pretty much here you go, they're approved. Here's what we're kind of doing. This is the structure of the loan. And you know, and Aaron and Corey are really, really good understanding the government side of this from FHA, VA, and USDA. They've got lots of years of experience Jon G. Sanchez: Beautiful. Dwight Millard: in this. So that's where the newbies are run, it's tough because they don't understand. the ramifications. You can't unwind things that you've already wound up. Not very easy anyhow. Jon G. Sanchez: Sure. Dwight Millard: Yeah. Jon G. Sanchez: Okay, so we'll squeeze this in, say, for the next minute before we have to go to break. Dwight Millard: Mm. Jon G. Sanchez: The biggie and the topic of today's show, the third thing that must be approved. That really a lot of people don't think about this, right? They it's all about, I'm getting approved as an individual or a husband and wife to purchase this property, et cetera. And I've chosen my loan. Dwight Millard: Mm-hmm. Yeah. Jon G. Sanchez: Dwight, the property, you have to approve Dwight Millard: Yep. Mm-hmm. Jon G. Sanchez: the property. Dwight Millard: Yeah. contrary to most opinions, we don't want the property back, right? We just want you to pay your payment, sell it, whatever. Yeah, yeah. We don't want the property. There are some lenders out there that we know of that would like to have the property, but not us. you know, it just has to support, you know, Jon G. Sanchez: You're not in the business of accumulating properties? Wow, shocking. Yeah. What are you looking at on the property? Dwight Millard: you know, so we're looking at the sales price, it's supporting the sales price. Make sure that there's no major damage. It's not at least disclose, you know, structural. We we don't care if you got blue carpet and green cabinets, you know. and then we just want to make sure that when we deliver the collateral package, it meets all the re requirements for the investor. Now remember they can come back and say, hey, we don't really like that comp. We'd like to get have you get another recent comp, which they do quite often. So that's why we're trying to really, really be vigilant in what we're doing because sometimes you can't re and then they, you know, you what do you get a repurchase agreement notification, right? So and then Jon G. Sanchez: Yeah, no no one likes those. Dwight Millard: we just gotta make sure they've got adequate insurance and, you know, all the clean title, yet big, big what the adequate insurance, yes, yes. Jon G. Sanchez: Big challenge. Big challenge. Right. K can I interrupt you, you both interrupt you real quickly on that. have you either of you had a property rejected by the lender? everything all the boxes were checked except the insurance side of it. They couldn't get adequate insurance because maybe they're in the pine trees, whatever the scenario may be. Aaron. Aaron Clark, Edge Realty: Yeah, absolutely. I had one in Incline where it had a wood shake roof and that's big no no. Yeah, so it Jon G. Sanchez: Big no no. Okay. Aaron Clark, Edge Realty: was rejected and we had to do a lot of hoop jumping to solve that problem, but we ended up getting it closed eventually. Jon G. Sanchez: Wow, I can imagine. Okay, very g with the shake roof. Wow. Aaron Clark, Edge Realty: With the Shaker, if we had to switch lenders and long Dwight Millard: Right. Aaron Clark, Edge Realty: story short, I got my client to find a family member who had insurance through USAA, sponsored them to open an account, got them qualified, and then Jon G. Sanchez: my gosh. Aaron Clark, Edge Realty: had them transfer the homeowners insurance through the USA to their them under their name and switch lenders. And we got it all done. Yeah. Yep. Jon G. Sanchez: No kidding. Wow. There And Dwight Millard: And yeah. Jon G. Sanchez: Dwight, again, most importantly, the the property, again, we're not talking the borrower, the property has to meet the the eligibility requirements, right? We've talked about condos and all kinds of things. It's Dwight Millard: Mm-hmm. Yeah. Yeah, yeah. Mm-hmm. Jon G. Sanchez: it's not it's not a given that every house is gonna meet eligibility requirements. Dwight Millard: A absolutely. And you do have a third person in the underwriter we all talk about that could make a call, a a judgment call at any point in time and require something that you didn't really know. And that doesn't happen now as frequent as it used to, but it can happen. And so yeah, so and then you gotta make sure you got a really, really clean file to deliver to the agencies and the investors. So yeah. Jon G. Sanchez: There go. All right. When we come back, one that really catches people off guard. if you've ever been down this path, you know what I'm going talk about. The appraisal, right? Everything looks great except that dear friend of ours, the appraiser. He or she comes back and goes, No, you're buying this house for 700. It's only worth 620. Now we've got a problem. Son of a gun. Son of a gun. All right. Aaron Clark, Edge Realty: Yeah, Richard Lace. Hopefully you're listening. Dwight Millard: Using no names, Richard. Yeah. Jon G. Sanchez: That's right. All right. So the appraisal has three possible answers. We're going to touch on that when we come back and continue our discussion. The buyer's qualified, but the house didn't. It's turned Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez: Welcome back to the John Sanchez Show on News Talk 780 KOH with Dwight Millard: Yeah. Jon G. Sanchez: Aaron Clark of It's Reality, Dwight Millard of OnQ Home Loans. All right, once again, good day in the market today. Finished up 556 on the Dow. NASDAQ higher by just 20, but it was down, like I said, over 400 in the pre-market, and the SP higher by 25. All right, we're just getting warmed up with our topic. The buyer qualified, but the house didn't. Now we're going to transition over to another area that can shoot a deal down. All right, Dwight's already pre-approved. You you're fine, but we're focusing on the house, and that is the appraisal. So, really, guys, I guess the appraisal has three possible answers. So, Dwight, let me start with you on this one. The value supports the transaction, right? That's what you're looking at as a lender. Dwight Millard: Right. Right. Yeah. You know that the the sales price is not inflated and it comes in and there's not a major discount. Remember, John, you can also have a problem where, you know, you've got somebody that house is worth 500,000, they're selling it for three. They don't like that either. So I I mean you can't have huge discounts. That creates red absolutely. Absolutely. So then they start to think there's a Jon G. Sanchez: Really? That's interesting. No kidding. Wow, you got me on that one. Dwight Millard: that you start to think there's an arm's length transaction there or something. Yes. So there are some definitely red flags when it comes to the value. But I mean Most of the time, ninety nine percent of the time, John, and they're just gonna base it on the comparables. They're gonna give you the the value and then that's what you gotta go with. Very rarely can you get a second Jon G. Sanchez: Is there is Dwight Millard: appraisal. Jon G. Sanchez: You're right. I yeah, I remember you've emphasized that. Is Dwight Millard: Yeah, yeah. Jon G. Sanchez: there a range, Dwight, say up or you know, higher or lower of the appraisal of say ten or twenty percent before the red flags go off? Or is it a case by case? Dwight Millard: No, yeah, it's a case by case, but we run every remember, we run every appraisal through a a you know, a scoring system now and that that kind of eliminates that. So Jon G. Sanchez: Okay. Dwight Millard: I mean one to five, you know, and so that kind of mitigates that right up front. So no, not there's nothing there's no value. It's like you said, it's case by case. Yeah. Jon G. Sanchez: Okay. Okay. Well you kinda you kinda chewed up two of the three points on the appraisal. The value sports the transaction, the value's too low. So let's go to the third one. The property is appraised subject to repairs or additional investigation. Dwight Millard: Mm. Yeah, we don't like that, do we, Erin? We don't. I mean, it's the investigations, Jon G. Sanchez: We don't like that. Dwight Millard: the investigation repairs are okay depending on the scope of repairs, John. sometimes, you know, you get into a situation where this seller wants to ask for escrow withholds, you know, where you impound them, you you know, the the repairs because they're so big. And Jon G. Sanchez: Yep. Okay. Dwight Millard: Those are tougher these days to do a lot of a big escrow holdback. they don't like doing you can do it a little bit for weather, but yeah, you you just and you gotta make sure those the scope of repairs are done. So you gotta get a know, you've got to get a Jon G. Sanchez: Before closing. Yep. Dwight Millard: yeah, you've gotta get the appraiser back out there and they'll look at everything that they notice. The problem sometimes, John, is that you'll you'll see that and it'll open up another can of worms with the underwriter. So you have to be careful Jon G. Sanchez: I bet. I bet. I bet. Dwight Millard: about, yeah, yeah. Jon G. Sanchez: So Aaron, let's let's come over to you on this on this third one. So that appraisal comes in below the contract price, right? Let's use hypothetical. You sell the house for 700, appraisal comes in at whatever. 600. Is that what you okay? What do you want to 650? Is that more more normal? okay. So we're 20 grand off. Okay. All right. What do we do? What are the options at this point? Yeah. Aaron Clark, Edge Realty: Not that's way too much. Yeah. Like six eighty. Yeah. Yeah, that's a good number. Yeah, yeah. Yeah, yeah. Yeah. We run. We run. We quit. No. it depends. I mean, it the type of market, when rates were three, three and a half percent, the buyer ate the costs, or if they couldn't afford it, then they canceled because the seller didn't have to budge, right? They said pay the difference. we were writing contracts saying that although there's a contingency in here for the appraised value, we are agreeing to waive it. So if it doesn't appraise, no matter what, we will pay whatever contract price we've agreed to pay. Now Jon G. Sanchez: Wait, wait, re re wait, wait, wait, wait. Repeat that again. Aaron Clark, Edge Realty: So I would write a contract price on let's say a house was listed for six fifty, it's so competitive. We wrote an offer for seven hundred and then under appraised val under the appraisal contingency, we would waive that contingency. So no matter what it appraised for, we would still pay that that contract price. yeah, it was or it it was insane. Now Jon G. Sanchez: You'd wave it. no kidding. Wow. Wow. Dwight Millard: I mean yeah. Yeah. Yeah. Aaron Clark, Edge Realty: we're definitely more of a buyer's market as a whole. And so because Jon G. Sanchez: Yeah. Aaron Clark, Edge Realty: of it, you're not seeing that so much. So if the appraisal comes in less right now, because remember, market determines the result of these situations. And right now Jon G. Sanchez: Sure. Aaron Clark, Edge Realty: with the market, in most cases, we're going to go back to the seller and say, hey, didn't appraise, drop the price, and they're going to be happy to do it because they know they don't want to lose that buyer. And so if it's 700, it appraises for 680. They're going to drop their appraised value to 680. Now they might not give as much Jon G. Sanchez: Okay. Okay. Aaron Clark, Edge Realty: on repairs because they just dropped it that much. And and remember that. The appraisal determines what the bank sees as value for collateral. it doesn't Jon G. Sanchez: Mm-hmm. Aaron Clark, Edge Realty: mean that it's not worth, in that scenario, 700 because they might have put $150,000 worth of remodeling Jon G. Sanchez: Sure, the market value. Right. Dwight Millard: Right, right, right. Mm-hmm. Aaron Clark, Edge Realty: into the home. We all know it's worth it, or that detached garage in the back, but it doesn't matter because it's based upon what you can prove. And that's what the appraisal has to do. So if the appraiser cannot prove that there's value assigned Jon G. Sanchez: Mm-hmm. Aaron Clark, Edge Realty: to something. Then it is what it is. And w we've seen that many times Dwight Millard: Mm-hmm. Aaron Clark, Edge Realty: with solar panels, we see it with geothermal, we've seen it with all kinds of things. If there isn't other properties that sold to v to validate that value, Dwight Millard: Okay. Aaron Clark, Edge Realty: the appraisal is stuck using or appraiser stuck using comps that are relative to that property. Jon G. Sanchez: Well, I I I you know, I'll speak from the outside looking in. I know in deals I've I've referred over to you guys over the years, on we'll call it unique properties, right? One's like you were talking during the break air Dwight Millard: Mm-hmm. Mm-hmm. Jon G. Sanchez: and one sitting out on a river or a farmland or something Aaron Clark, Edge Realty: Mm-hmm. Jon G. Sanchez: where there is no cop, right? This is a one in a million property, then that's where some of those issues come into play. Aaron Clark, Edge Realty: Absolutely. And with like investment properties, if let's say we have an issue on on determining the value of the property, then we can use the income approach. So we can look at it and go, well, this is how much it makes per month. This is what it would equal. Jon G. Sanchez: Yeah, the income approach. That's right. I was gonna say that. And what Dwight Millard: Yeah. Mm-hmm. Jon G. Sanchez: error means by that, there's what is there, guys? There's three three methods on a commercial property that it can be appraised at. And then one, if you have tenants or it's an income producing property in some form or fashion, the appraiser generally will use the income approach, which is again, because it's a unique property, they they they'll go that they have a formula to look at what the income is, et cetera. And then that's the main component of creating the appraisal. Dwight Millard: But John, even on even on residential, the appraisers comment on what the on an investment, we take what they put down as the rent analysis is what the rent's gonna be, even if you can get higher rent. So they control a lot Jon G. Sanchez: Okay. Okay. Aaron Clark, Edge Realty: Yep, it's stuck into that. Dwight Millard: of they control a lot of the power there. Jon G. Sanchez: Okay, perfect. Man, man, we got so many more things, but I I we've got to get this in. And Aaron, tell me if you want to wait till we get back from break because it's time for us to go the contract side of it. Because I think that's where again people can yeah, you want you want to talk for break? Okay, yeah, I think that's a good idea. Yeah, so I know it's a long one, that's why I give you the give you the option. All Aaron Clark, Edge Realty: After break. Yeah, let's do it. Yeah. It can be. Dwight Millard: He's Jon G. Sanchez: right, so so when we come back, we're gonna talk about again this as Aaron said at the beginning of the show, some specific language that needs to be in the contract, or again, you can really get yourself in trouble. Welcome back to the John Sanchez show on News Talk seven eighty K, which we're talking about. The buyer qualified, but the house didn't. Let's get some phone numbers going though first. Mr. Millard. Dwight Millard: Yes, sir. Two four zero two zero two two. Jon G. Sanchez: Thank you, sir. Mr. Clark. Aaron Clark, Edge Realty: Six seven three sixty seven hundred. Jon G. Sanchez: Okay. Thank you. Okay, Aaron, we got to get this in, the contract side of things, right? So we're talking again, so many things. It's it the way you guys are making this sound, and I, you know, whether it's intentional or not, almost Dwight, it's almost easier qual you know, approving the buyer than it is appro approving the house, right? And I think a lot of people, yeah, yeah. Dwight Millard: It can be. Absolutely it can be. Yeah. Jon G. Sanchez: So so Aaron, what kind of language do we need to make sure our real estate contract has? So We get through this whole process and like Dwight said down to the twelfth hour and then oops, this isn't right or this isn't right, the appraisal's down, et cetera. Aaron Clark, Edge Realty: Yeah, I mean in the contract there there's a s a s like a default spot in there that says, you know, that the can the the offers contingent upon the appraisal. and then there of course is the inspections and things like that. And they all kinda will weave in to each other to protect everything. But it's important in the language that, you know, when when we're negotiating and we're making contingent upon the appraisal and we agree to s a certain price, and let's say that that appraisal comes in less. We are officially out of contract at that point in time w until we renegotiate Jon G. Sanchez: Right. Aaron Clark, Edge Realty: whatever it's gonna be, whether it's a price reduction, a credit, the buyer just agrees to pay the price anyways. Jon G. Sanchez: I want you to stop because I've been caught in that one. I want you to stop and explain that one more time. Give an example. Aaron Clark, Edge Realty: So we're in contract for a purchase price of 800,000 with a conventional loan, blah, blah, blah, doesn't matter the rest. And then the appraisal comes in at 750 will be extreme. So because the appraisal came in at six or seven fifty, the contract is contingent upon loan qualification, which now our loan is not qualified. It's contingent upon appraisal, which now we do not have an appraisal that justifies the contract price. So the offer and acceptance, the contract. is still in place for the amount of 800,000, but our contingencies have offset what our contract is by giving us a a variable within the contract, which allows for renegotiating. So now we have to go back to the table and renegotiate whatever we all agree upon. Jon G. Sanchez: So is that first contract void now? I mean, is it legally void? Aaron Clark, Edge Realty: It's not that it's it's not that it's void, it's that we are we're in we're operating under our contingency right now where no one has to perform on either side because there's a contingency that hasn't been met. So now we have to renegotiate to put that contingency to bed, or we're we're done. We we're out. So if for example the buyer said Jon G. Sanchez: what if I but but can I walk though if I'm the buyer and I'm like, Aaron Clark, Edge Realty: Absolutely. Jon G. Sanchez: man, all of a sudden I've changed my mind. I don't like that this thing's under, you know, fifty thousand. Okay. So that's my point. It does null avoid the contract. Yes. Aaron Clark, Edge Realty: Yeah. Yeah, because you agreed to pay $800,000 if you can Dwight Millard: Mm-hmm. Aaron Clark, Edge Realty: get a loan from Dwight for a purchase of $800,000. The appraisal subject to the appraisal. The appraisal comes in at $750. Dwight says, Sorry, I can only give you a loan on a purchase price of $750. Buyer goes to seller and says, I can only get a loan on $750. I can't buy your house now. I'm not going to pay $50,000 extra. Yeah. So then the buyer can say, Jon G. Sanchez: And I'm sure as hell not coming out of pocket fifty thousand dollars. Yeah. Yeah. Dwight Millard: Yeah, right. Mm-hmm. Aaron Clark, Edge Realty: I'm done. I don't want to buy your house. The seller can say, Jon G. Sanchez: See ya. Give me my money back. Aaron Clark, Edge Realty: I don't want you to buy my house. But at the same time, Dwight Millard: Okay. Aaron Clark, Edge Realty: the seller can say, hold on, hold on. I don't want to lose you. I don't want to start over. We knew this might happen. We knew we were a little high because of our new kitchen. We'll drop the price because we want to be done and we don't want to start over to seven fifty. And then the buyer goes, okay, cool. And then we put it back into contract. And that contingency is now that the appraisal is at seven fifty. Purchase price is now seven fifty. Everything's done. We move forward. Jon G. Sanchez: Okay. So you're basically doing it Dwight Millard: Aaron Aaron, I have a quick question. Yeah. No, John, i so there's a there's a date on that appraisal contingency. Aaron, that's why it's so important that that appraisal gets Aaron Clark, Edge Realty: Yes. Dwight Millard: because does that go away if that appraisal doesn't come in on that date? Do you lose that contingency feature? Yeah. Yeah. Aaron Clark, Edge Realty: Well yeah, your contingency is based upon the appraisal, which is due in X amount of days. If I put five days and we don't have the appraisal in five days, we're out of contract. And now you can't exercise it. Yeah. So now you can lose your earnest money Dwight Millard: So John, that all goes away. Now you can't just walk. Yeah. So that data's huge. Aaron Clark, Edge Realty: deposit. Dwight Millard: Yeah. Yeah. Jon G. Sanchez: Why why would you lose the it's not your fault? Aaron Clark, Edge Realty: Because you don't have you're you're saying it's contingent upon the appraisal, and then you're putting a an expiration timeline of let's say ten Dwight Millard: A date Aaron Clark, Edge Realty: days. We don't have the Jon G. Sanchez: Right. Aaron Clark, Edge Realty: appraisal in ten days. Well the contingency expires in ten days. So we would have to jump in there real quick and add. Jon G. Sanchez: So it's the fault of the buyer. Aaron Clark, Edge Realty: It would be the fault of the agent representing the buyer or the buyer representing themselves. Yeah, because you shouldn't be putting ten days on an appraisal, especially Jon G. Sanchez: Right. Aaron Clark, Edge Realty: on a crazy property in the middle of nowhere that's gonna take some serious work, you better be putting Dwight Millard: Now amen. Aaron Clark, Edge Realty: twenty, five, thirty days on something like that. Dwight Millard: But John, you get inexperienced agents putting ten days because they want their offer to get accepted. yeah. All the time. Yeah, all the time. Jon G. Sanchez: Have you guys seen that? No kidding. Aaron Clark, Edge Realty: All the time. And the seller does not once it's in contract, this you can the buyer agent can go to the seller and say, Hey, guess what? Appraisal's gonna take it a little bit longer than we expected. We wanna do an extension on that appraisal contingencies and move it from 10 days to 20 days. The b the seller doesn't have to do that. You already you're in contract. You've already agreed. They can hold your Dwight Millard: Yeah. Mm-hmm. Aaron Clark, Edge Realty: your feet to the fire on that. Jon G. Sanchez: These little things, right, Aaron? These little Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez: things can get everybody blow up deals get you in court. Aaron Clark, Edge Realty: There's so many intricate Dwight Millard: Mm-hmm. Mm-hmm. Aaron Clark, Edge Realty: woven things within the whole transaction that have to be right. The realtor is the the the one in the middle of the web, making sure all every string is running and being pulled at the same time at the right time. Jon G. Sanchez: Yeah, absolutely. Or mas the the the or the puppet master. Yeah, exactly. Dwight Millard: The puppet master. Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez: well we gotta delve into this topic again and down the road, guys. Aaron Clark, Edge Realty: Yes. Jon G. Sanchez: Great job. Very fascinating. I Dwight Millard: Mm-hmm. Jon G. Sanchez: I even learned so much from you today. So I appreciate that. And I know the audience does too. All righty, boys. God bless. Have a great afternoon, everybody. We'll see you tomorrow on the John Sanchez show. See ya boys. Great job, guys. Great job. Dwight Millard: I love when we go off