Props to the Utah Association of Realtors. We really needed a fix in the form of a new addendum to address the indecipherable and ofttimes misinterpreted language used to offer over ask price on a listed property. They provided one ... bless their hearts. What they did not provide, but would have seriously benefited every buyer, seller and Realtor in this market, is mandatory training on how to use the form before allowing anyone even as close as within a 10-foot access to said form.
Granted, we were really seeing some serious “contract writing” by agents. The problem with this is only an attorney can “write” a contract. As Realtors, we can really only “fill in the blanks.” The reason for this is that most of us have not gone to law school and passed the LSAT, thus are not legally qualified to write contracts, lest we get ourselves in trouble by using language that could be interpreted in far too many ways. So, we have lawyers do it instead. They are legally qualified to draft contracts with language that can also be interpreted in far too many ways. That is why we have the entire justice system. Ahh, but I digress.
Back to the Appraisal Addendum; it is not rocket science. The language includes the following: “1.A. Appraisal guarantee. In the event the property appraises for less than the purchase price but more than $______(‘Appraisal Floor’), buyer agrees that the purchase price shall not be reduced, and buyer shall pay the difference between the appraised value and the purchase price in cash at Settlement. The terms of this paragraph amend Section 8.2 of the REPC.” See? Clear as mud.
Last weekend, I had two listings go live for showings. We received multiple offers on both. Many of these offers included the use of the Appraisal Addendum. As an example of what was presented, let us say one of these listings had a list price of $395,000. Due to market conditions, we rarely see offers at list price. The price is often escalated above list price from the start. This was certainly the case here. Many of the offers were similar in offer price within just a couple thousand dollars. However, that is where the similarities stopped. There was nothing at all similar in the way the Appraisal Addendum was used. One had an appraisal floor of $414,000 (for example), while another had it at the list price of $395,000. Still others offered $430,000 but escalated up to only $420,000. Umm, what? I’m with you. The intent here is not clear at all.
According to the addendum, if we accepted the offer of $395,000 with an appraisal floor of $414,000 which escalated up to $430,000, that means if the property does not appraise for at least $414,000 (which it likely will not since $395,000 was the absolute max I could pull on comparisons, likely the same ones an appraiser is going to pull), then the buyer can invoke 1.B. “Buyer’s Right to Cancel. If the appraised value is less than the Appraisal Floor, then Buyer shall have the right to cancel the REPC in accordance with the terms of Section 8.2(a) of the REPC.” Why would my seller pick an offer that would likely result in a cancelled contract due to the home not appraising for the “floor” of $414,000, which it won’t.
After calling these buyer’s agents to clarify, one thing became glaringly clear; most agents do not have any clear training on how to use the addendum. What this agent intended, was not at all what he had actually written.
While the gesture is truly appreciated, please ask your agent if they can explain how this addendum works in clear terms before submitting it with an offer; otherwise, the opportunity to win the bid on a desired home may be lost.