Since the pre approval letter was for only 50% of the mortgage, it should have been a flag unless they can also provide cash equivalents of 50% under their names. Banks usually will pre-qualify you for what you are able to afford and it seems the one you had was not really authentic. I’ve had to present pre-approval letters and they were not just a survey.
@sherpa we cross-posted.
Maybe I was not clear. The pre-approval letter did state the offer amount and matched the terms of the contract - 1/2 cash and 1/2 mortgage. So there were no red flags there. They didn’t have a problem with the cash part of the offer (I think that was money from their parents), they had a problem securing the loan - which exactly matched what the approval letter stated.
When we had to get a preapproval letter, the bank ran our credit report and verified our employment via paystubs which we had to submit. There was no specific offer in the letter mentioned, the letter just said Mr and Mrs B are approved to borrow $xxx,xxx for a home purchase with at least 20% down. It also took us a couple of weeks to get a pre-approval even though these weren’t binding. Wonder if a friend or a relative cobbled up a letter together for those buyers…
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We accepted an all cash offer in Fall 2023 that also included no inspection/appraisal. It was not the higher offer but with a 100 year old home we were thrilled to not hold our breath through an inspection (we actually did counter with the cash offer to increase the bid a bit and they immediately said yes). It was a young couple maybe 30. I believe they were borrowing the cash from a grandparent. What was interesting was after we closed (and we still had 30 days to clear out) the buyers asked if it would be ok if an appraiser came by one day. We think what they did is take the cash from the grandparent, closed and paid off, then were setting up something to establish payment back to grandparent.
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I don’t think the buyer would lose the earnest money because the house didn’t appraise close enough to the selling price, unless the selling agent did a really crummy job writing up the offer to not cover that contingency. Otherwise buyers would be thrilled to take the offer with the riskiest buyers. Not going to qualify? Alright, then I keep your 40K.
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Forgive me for slightly derailing but this jumped out at me. My mother died in 2016 and there was definitely a stepped up basis for stocks (as well as real estate). If I’m remembering correctly, your mother died more recently than that. Has that changed? I’d like to think I would have been aware of it but now I’m concerned.
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Yes, I also am wondering what she means. I understand that you have to pay whatever your personal tax rate is when you withdraw from an inherited IRA, but no step up in basis for stocks from a non IRA account? I think there would be a huge outcry if they changed this in the tax law.
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I don’t want to go into too much detail here. It was a generation skipping trust. Believe me qualified finance people tried. This means that basically anything I sell is approximately 80% gain. When I die there will be a step up for my kids to the value the date of my death. Powerful motive to be frugal.
I recommend the Book “Get your Ducks in a Row” which explains this.
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It is also possible that between the time they made their offer and the time they actually applied for the mortgage, something substantial changed with their finances (somebody got laid off, etc.) I will never know the full story. Their realtor was very close mouthed about the entire thing. My realtor was pissed that we were kept in the dark. They actually never gave up. We denied them a 3 week extension to get a mortgage approval and that cancelled the contract. They did get their earnest money back.
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I don’t think the buyer would lose the earnest money because the house didn’t appraise close enough to the selling price, unless the selling agent did a really crummy job writing up the offer to not cover that contingency. Otherwise buyers would be thrilled to take the offer with the riskiest buyers. Not going to qualify? Alright, then I keep your 40K.
In a seller’s market, no one would accept an offer in which the earnest money was contingent on appraisal.
I also can’t imagine that folks would start to take offers in which they’re gambling that the offer will indeed fall through as a way to keep earnest money. There’s a clock ticking on how long a home is on the market, and the longer one is, the lower any subsequent offers generally are as buyers sense that if a home isn’t sold briskly, and is lingering on the market, there are either issues with the home and/or it’s also overvalued.
It just always depends on the local market, when it’s a buyer’s market they can write all sorts of contingencies in, and a seller will accept if they believe it’s their best option to get out of their home. (My peers who were selling in 2008-2009 desperately needed to sell and if they did receive an offer it was stacked with contingencies and also frequently lower than their purchase price.)
I last bought during a strong buyer’s market years ago when houses were typically pending within 24 hours. My offer was all cash, 30% over asking price, with 10% earnest money, no inspection, and a 14 day close. And that was not the strongest offer. I only got the house because the buyers backed out a day later, deciding it was too small for them. Sellers contacted me and asked if I would like to up my offer. I added more money, with the same terms and got the house. It was awful! But it was the only way to get a home at the time.
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In any market, you would be nuts to not put in a financing contingency if you actually needed one, and weren’t certain that you could get the money, or had the Mom and Dad backup plan. If the appraisal comes in too low and you can’t get the financing, you’d only be out the cost of the appraisal.
I could easily see a situation where if earnest deposits were easy to keep, that some scammers would accept the shakiest, highest offer possible. Rinse and repeat. We had someone pull out a week after we accepted their offer, just because they changed their mind, nothing more. Our realtor said that he’s never seen anyone be able to keep an earnest deposit, for any reason. Perhaps the ease of keeping the deposit varies by state.
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30% over asking price? Wow! Unless they priced it way low to get more interest.
We saw this happen. Buyer was one of 30 who bid on a home. Cash sale. They put $30,000 down. Sight unseen…no contingencies. Two days before the closing ( well more than 6 weeks) the buyer changed his mind, no reason given. The sellers could have taken any number of other offers and closed in the meantime. The real Estate agent said this was beyond the pale. The sellers got to keep the deposit…it was clear this would head to lawyers, and the back out buyer just folded.
Yes, the house did sell. But the sellers lost a lot of time.
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I think there are a lot of shenanigans when it comes to real estate. I’ve been on the receiving end of a few of them. The less you understand, the more trusting you are, the worse it can be. Pulling out two days prior to closing for no reason two days prior seems like a very legitimate reason for the sellers to keep the deposit.
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That’s why nowadays to make an offer stronger, buyers make their deposit non-refundable when all contingencies (if any) are satisfied.
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Absolutely. There was one for which I wanted either a dart board or a voodoo doll, and another half dozen who weren’t evil but just incapable of doing their job well. The rest were pretty good as far as closing the deal but I’d never care to see them socially.
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Irrevocable trusts don’t get step up.
This was not irrevocable. @iglooo
My bad. I thought all GST are irrevocable. At any rate, GST is not subject to estates tax. Since you don’t pay estate tax, you don’t get the advantage that comes with estate tax, i.e. step up.