It doesn’t happen often but sometimes we get to the last days of a deal when all of the pieces can be broken a part by one small unforeseen change. Recently we helped a client purchased a newly constructed townhouse with a well known builder who at the last moment had one of these unforeseen changes happen. The client needed a mortgage that was equal to 80% of the purchase price and had the remaining 20% in cash as their down payment. One of the items the bank had requested was an appraisal as the property was in a new subdivision that they had seen yet. An appraiser went out, completed the appraisal which advised that the purchase price of the property was $9,000 more than the comparable sales value. This meant that our client had to find an additional $9,000 to use as a down payment or ask the bank to increase the mortgage from 80%. (As a side note, if the bank provided a mortgage that was greater than 80% of the purchase price our client would have had to pay an insurance premium as the mortgage would have been considered “high ratio”.)
The reason for the difference between what the client was paying and what the appraisal reported the property was worth (based on comparable sales) had to do with the charge that the builder applied to the townhouse because it was an end unit. The townhouse was the last townhouse in a row of townhouses which commanded a premium. The appraiser recognized that the townhouse was an end unit and added a $5,000 adjustment to increase the appraised value. The problem is that the builder added $14,000 to the purchase price because that is what they felt the premium should be for an end unit. The client was able to make up the difference but for obvious reasons was not happy about it. The builder charged $9,000 more for a feature that the general market changes $5,000 for.
If you are purchasing a new property of any sort it is important to know how a bank or lender will consider some of the add-ons or upgrades. Not checking this before you commit to a transaction can cost you real money.