Often when buying a new home, the builder will recommend his mortgage lender for the loan as well as suggesting one of their agents, Either that or you don’t need any representation at all. Both of these options comes with a discount of sorts, so it seems to make sense to use the cheaper option.
Well recently I came across a situation on a house I was working on selling. Contract was clean, the inspection was clean, but the appraisal came back almost 400 feet short. The 4200 square foot home I was selling was coming back at 3800 square feet on the appraisal. At first I thought this was going to be an easy fix. 400 feet is a big space, so the appraiser must have missed a room or two. But as I looked at his measurements, it was all adding up. So the homeowner took a tape and started measuring each room on his own, and came up with the same number. How is it possible that this home, purchased as a model home and listed in the tax records as 4200 square feet, be smaller than that?
It took about an hour of head scratching before we realized the problem. As a model, the garage is used as an office, and therefore it’s airconditioned. So when the builder sold the house, they made sure their lender got an appraisal counting the garage as part of the living space. That appraisal was never provided to this home owner, so he never picked up on the issue. The deal ended up falling through and the contract was terminated.
So now, we have a home that is 400 square feet smaller than we thought, which means we need to price this lower than expected. This also means the sale proceeds were virtually eliminated as the house was bought and financed at the higher square footage. And finally, to add insult to injury, this homeowner has been paying taxes on a 4200 square foot home for the last 8 years, not 3800 square feet. That cost him an extra $1200 per year in taxes.
So the builder screwed this couple because they were both the seller and the finance company. And while it’s never a sure thing, there’s a good chance that a second set of eyes of someone who’s experienced in real estate would have caught this.
Moral? A few bucks saved at closing can be very costly. Find a trustworthy lender beforehand and make sure you have someone on your side to catch the tricks that are played. It could cost you thousands if you don’t.