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The Texas Real Estate Addendum Explained

Posted by Ryan Rodenbeck on Friday, July 17th, 2020 at 12:56pm

Sunny: Okay, so this presentation actually did, I think, last summer or maybe the summer, I think last summer about the appraisal addendum but it's, one of the four written addendums that we have, I feel like it's kind of written backward. For you to understand it is important to us, but you'll find that it's even, it's equally as important to understand how to explain it to listing agents, because a lot of times they don't understand it. But what you're dealing with is the part of the third party financing addendum that reads if the buyer's lender that makes the property contingent upon appraisal, basically. This slideshow is available on Workplace so it's always out there and it's a quick reference whenever you're writing one of these up if you need to go back and look at it. But there are three different options basically, within the addendum.

The first one means that you're waiving the whole appraisal, meaning no matter how low it comes in, you're still buying the property. This one you're probably rarely going to use, but I do see it used now and then so you know, it would make sure that you've explained that to the buyer. Because you basically check this you have no grounds for terminating or renegotiating a contract based on the appraisal with the check when you checkbox number one.

Box number two is what you guys are going to use most often and this basically gives you a floor on your on the appraisal amount in the amount of difference you're willing to bring to the table. So the conversation is easiest to have with your buyers is you know, how much cash do you have available or are you willing to bring to the table if the appraisal comes in low? You're buying a $500,000 property and they say we've got 10 grands that we're willing to bring to the table. If the appraisal comes in low, then this number right here would be 490. It's basically your contract price, less whatever cash you're willing to bring there and you're saying as long as the property appraises for this bottom line or above, we're good. We're going to go forward. We're going to bring that extra cash and not have the appraisal contingency, but it still gives you that floor of like if it appraises for below for you know, I'm using the $500 sales price, if it appraises for below 490 and your clients are only willing to bring that $10,000 then they have that contingency to either terminate or renegotiate. So again, this just kind of describes how you do that.

Ryan: So we're gonna run through this real quick. So if this property is listed at let's do an example of this, the property is listed at 365.

Sunny: This isn't listed at 350. Buyers are gonna offer 365 because they want to go over list price you're in multiple offers. They say they'll cover up to $10,000 in the difference between the contract and appraise price. So you would put 355 in that blank. Whatever your contract price is, minus what you're willing to bring is what you put there.

Ryan: Yeah, and this is really important to know, not just to know but you're also you're gonna have to explain this to a lot to listing agents because this is so poorly written. Before this came out, we actually had one written by an attorney that was much easier to better.

Sunny: Yeah, and I said that word as you walked off, right. And I said, you're gonna not only have to know this, because not only you have to explain it to your buyers because your buyers are going to say, wait a minute, what am I signing? How does this work? Because the number that you've been talking to them about is most likely this $10,000 number, you've been talking to them about the different numbers. And, you know, in a perfect world, that's how I would have had this addendum written to put in the difference that you're willing to bring. But they kind of have it written backward where they want you to put in the floor of the appraisal, and then you'll make up the difference from there. So, fortunately, that's what the tribe gave us.

Box three basically says you're not likely to use this one very much. It says that this is a cover a buyer putting up a large downpayment, probably that doesn't want to pay too much for the property where the appraisal to come in drastically short and the lender's underwriter is still going to approve them because their downpayment is so big. You know if you if you're if your people are buying a $500,000 property and they're putting down 250,000, say the property appraises for 400, your buyers are still breeding enough to make more than 20% there's a chance that the loan still gets approved. Maybe my numbers aren't right there. But you if you're if you've got a buyer that's got a really big downpayment, and you're worried that there's a chance that there are not good comps, and this appraisal could come in a really goofy and low talk to the lender first about how they want you to proceed here because this gives you a number of days that the buyer can terminate if the appraisal comes in less than a certain amount. So this is kind of the same as number two.

Ryan: This is going to be a lot more prevalent on luxury properties in Austin.

Sunny: Luxury and maybe like ranch or you know, something like that, that is going to be hard to comp and not real, real big down payments.

Ryan: And yes, it might like a lot of luxury property or sold off-market. So it's important to have this at your disposal. One thing I want to ask about it and I think we've kind of covered this before is the appraisal addendum is not covered under FHA and VA, right?

Sunny: That's correct. That's my understanding.

Ryan: Yeah. If anybody knows any different, I'd like to know, but I don't think you're gonna be able to use this for FHA and VA loans.

Sunny: That's my understanding, too, is that even if you did the appraisal addendum that the VA or FHA lender would kick it would probably not accept the contract right?

Ryan: I think so. We'll get this confirmed with a lender but I'm pretty sure. So this man with Sunny wrote. So like in that when we're putting that email out on when you're submitting multiple offers, this should be in there because this is going to explain to the seller's agent, what They're getting into because this is confusing stuff, guys, and this is why we're gonna sign if we practice these if we employed these practices.

Sunny: The catalyst for doing this was actually, I think it was Isabel, maybe last year had submitted that appraisal addendum with one of her offers. And I think she said it wasn't accepted because the listing agent didn't understand it and didn't understand how it was written. And so they were basically just kind of scared out of working with the deal when really, if that she was offering to bring money to the table. So this is kind of the language that we came up with that you can literally like copy and paste and just paste in your numbers to an email to help explain it to the listing agent. So you can literally come in here to this slideshow that's in Workplace, efficient tool for real estate agents, copy and paste this, plug in your own numbers and send it to the listing agent. That's it.

Ryan: Couple things that I want to want to go over with regard to this is like, you know, we're constantly trying to keep ourselves educated, keep you guys educated to be the best that we can possibly be.

This year is a prime example of that our numbers are outstanding, where I think we're about to contract to get close for $80 million for the year, and that doesn't include a lot of the agents that came over, you know, but during the year, so those are really strong numbers. You know, Sunny and Kelly and I did an exercise the other day where we looked at our stats, and here's what they are, and this is what you can tell, you know, buyers or sellers that are thinking of choosing you is that on average.

We have 6 times the volume of an average Austin agent and we have eliminated all the agents that don't do any deals. So that number one, obviously, be skewed. Our listings sell 23 days faster than the average agent and that's really something to be proud of.

Our list price to contract price ratio is 3 percentage points higher than the average Austin agent. I'm really proud of those stats. And I think a lot of that has to do with our commitment to continuing education, not the one not the kind of just gets our license renewed but really studying these practices. Sunny and I have been doing this with my listings for eight years, I'm starting to get to the point where I'm becoming a little bit out of practice and she knows a lot more about this than I do. But you know, we have studied this; we've talked with other agents, we've done everything. We can try to give our clients a leg up and these stats just prove that so congratulations to everyone for bringing these numbers in and just being so much higher above and better than the average agent. No one wants to be average and we're anything but average.

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