Mortgage contingencies, intended to protect the buyer in the event that they do not get the loan necessary to purchase the property, were of less importance in the days of easy credit, rising home prices, and permissive qualifying standards. Today, they play a significant role in the Hamptons when buying and selling a home.
In order for a real estate agent to be entitled to a commission, the agent must produce a ready, willing and able buyer prepared to meet all of the terms of the seller. An issue that can be problematic is when the obligation to purchase is contingent upon the ability to get a mortgage subject to an appraisal.
While today's interest rates are relatively low, lenders are looking for borrowers with larger down payments and are more conservative in their appraisals than before the real estate market crash.
To get a fix on how mortgage contingencies are affecting the market, I spoke with several Hamptons real estate agents to get their thoughts on the topic.
Sandy Morell, Associate Broker at The Corcoran Group
in Sag Harbor explained that, "Most of my deals are cash. It's always sad when a mortgage contingent customer loses out to a cash buyer, even though the mortgage offer is higher. I had a case where was no mortgage contingency but was subject to an appraisal at the sale price. Luckily it appraised."
"Banks say they will lend 90% LTV, (loan to value ratio), but in reality, they want higher down-payments," says Htun Han
, Owner/ Broker at Hamptons Realty Group
in Amagansett. "They still do second appraisals, but less frequently than in the past few months, before they will give a final commitment. Applicants have to be squeaky clean - credit, employment, income, source of down payment. I just lost a deal a week ahead of the closing because the borrower got laid off, found a higher-paying job, but couldn't show many months of pay stubs. The commitment was yanked. Banks have put up so many hurdles, the impetus for our market rebounding is not there."
Finally, Elliott Epstein, Associate Broker at Brown Harris Stevens
Southampton, weighted in, "I think mortgage contingency offers are not 100% credible unless accompanied by a pre-approval letter. With that being said, if the property doesn't appraise, then the letter doesn't mean anything. It will be increasingly burdensome in an upward market as we are in now rather than the reverse. Appraisers do not want to be called out for over appraising as was the practice early last decade."
Buying and selling a home, in the Hamptons especially, is about more than the price a seller wants and the buyer is willing to pay. All the stars must be aligned in order to make it happen. Often times, the real estate agent is called upon to be the arranger of the stars.
John is a St. John's University graduate, licensed Real Estate broker, DOS Certified Instructor, lecturer, teaches real estate license classes at Cook Maran Real Estate School, and is a well-respected consultant to the real estate industry. He previously taught at LIU and NYU. www.johnaviteritti.com