Sales Contract // Assignment Of Contract

[Greg Parker]

Appraisal I am working on is a shell property which will be renovated. The sale price $68,000 according to the document titled "Real Estate Purchase Agreement". An additional document was included as a separate attachment "Assignment of Contract". This document adds $19,000 to the purchase price for a total of $87,000 -- it is not in any way part of the seller agreement. I have seen doc's attached to agreements many times that outline a broker commission, agent commission, etc, never anything like this. The broker/agent commission is never added to the sale price of the property, it is typically paid out of the seller funds.

Real Estate Purchase Agreement is signed by the buyer and the seller, dated back in November. The second document is signed only by the buyer and the contract assignee, and is dated last week.

In my thinking, the first document outlines the actual sale of the property. The second is something the buyer has decided to do, but has nothing to do with the actual sale of the property. QA for the AMC is coming back and telling me that the assignment of contract is part of the purchase price, $87,000... not the $68,000 agreed on by the seller and buyer.

With these two documents, is the price $68,000 as outlined between the buyer and seller, or $87,000 as outlined by a contract dated 9 weeks later by the buyer and a third party. The wording in that secondary contract does outline the seller "assigning their rights and interest in the real estate purchase contract"...If I am missing something here, please educate me.

 

[Slappy]

If I were in this situation, I would keep in mind that appraised value and "contract price" are separarate issues. I would decribe the various contracts involved as "atypical" contracts. It sounds like they are doing something goofy and/or murky. We are not real estate attorneys. It is not our job to interpret non standard contracts. I would consider showing the "contract price" in may report as the one the AMC wants and describe the atypical nature of the contracts involved in your addenda. Your appraised value of course is your estimated market value irrespective of the contract prices.

 

[Howard Klahr]

In my thinking, the first document outlines the actual sale of the property. The second is something the buyer has decided to do, but has nothing to do with the actual sale of the property.

And you would be wrong

I would decribe the various contracts involved as "atypical" contracts. It sounds like they are doing something goofy and/or murky. We are not real estate attorneys. It is not our job to interpret non standard contracts.

Where is that noted in USPAP? My copy say that the appraiser is to analyze all purchase contracts and offers for the subject property.

QA for the AMC is coming back and telling me that the assignment of contract is part of the purchase price, $87,000... not the $68,000 agreed on by the seller and buyer.

The AMC is correct. You keep referencing the "Buyer" as the party in the initial purchase and sale contract. The actual "Buyer" of the property will be the Assignee from the assignment contract and that is how the deed will be recorded and is the Borrower for this loan ...

Having said that, you need to convey the actual transfer in all of its detail within the contract section of your appraisal report.

 

[Greg Parker]

@ Howard.

Could you go into more detail, please. I think I understand where you are coming from, but I'm not fully getting how this a --single-- transaction. The original agreement is between part A (seller) and party B (Buyer). The secondary contract is party B assigning their interest to party C. How can their interest be assigned when they do not own that interest? Wouldn't the first sale have to close for them to be able to do this?

I have outlined extensively every document I have for the report, but the two documents contradict one another... for instance: "This offer, when accepted comprises the entire agreement of purchaser and seller, and it is agreed that no other representations have been made". That's a line from the first agreement. The other area I am having an issue with, if the actual buyer is the assignee (which makes full sense), why is party B (who I keep calling the buyer) the borrower name on my engagement letter. This is for a mortgage. Obviously, I do not have a full understanding of what is going on there financially, but this is just one of those things that will stick in my gullet until I manage to understand.

On my secondary document, it states "Assignor wishes to assign it's rights and interest in the real estate purchase contract". Again, I understand the concept, but since the assignor is the borrower, and the assignee is the third party, how does that correlate to a mortgage? Party B is now getting a mortgage on a property Party C will own? It would make more sense to me if Party C were ultimately listed as the borrower

And please for anyone commenting... This is not a value issue, I am just trying to understand how something like this is a legal part of a sale. I have been an appraiser for a little under 12 years now, but this is the first time I've ever run across a contract like this. I'm not looking to be insulted or made a fool, I am simply trying to understand the logistics of how something like this works. My report is complete, I have analyzed the contract, but I don't feel I am doing a thorough job unless I understand how this third party can come into the mix given the language on the first contract, and no input from the actual owner of record for the property in question.

If anyone is curious though, my value opinion on the property was conservative at $110k.

 

[Howard Klahr]

OK, Party B (the Buyer on the Purchase and Sale agreement) has what is known as an equitable interest in the property once it is under contract. All contracts are assignable, unless specifically prohibited in the contract terms. Therefore, Party B can assign their interest in the contract and Party C then takes the place of Party B.

However, Party B can not be the borrower as they have transferred their interest in the contract. Check with the lender to verify this provision. Party B may have initially applied for the loan but Party C will be the ultimate borrower. If not, then your initial concern about possible mortgage fraud is justified.

Assignment of contracts happen all the time, especially with investor properties as opposed to end-user (homeowner) transactions.

Hope this helps

 

[residentialguy]

Looks like Howard has this in control. Bravo!

 

[Greg Parker]

I think I understand now. This may be as simple as me having the engagement letter changed to Party C name. I'd like to give at least the benefit of doubt and have that double checked prior to submitting this report later this morning. Thank you very much for the explanation. As many investor properties as I have done, I had never seen a contract such as this.

 

[J Grant]

I would describe the various contracts involved as "atypical" contracts. It sounds like they are doing something goofy and/or murky. We are not real estate attorneys. It is not our job to interpret non standard contracts.

"Where is that noted in USPAP? My copy say that the appraiser is to analyze all purchase contracts and offers for the subject property."

It is certainly can be part of our analysis for an appraiser to say if a contract terms are typical or not. USPAP does not tell us what to say or not say as the results of contract analysis.

The client sent 2 contracts to analyze, not one. Most contracts that I see are not assignable. Assigning contract is legal, but it was used for fraud/straw buyer and flipping during the boom.

The second assigned contract is the most recent price, so that could be put as the purchase price and explained why. However, the first contract references the seller who owns the property now as of effective date. So be careful how you disclose, and explain everything about the 2 contracts and assigning clause.

If you put the second contract higher price in as the sale price,, then the seller on that contract is not the subject property owner on record as of the effective appraisal date ( box to be checked on the URAR form would be NO) .

As an appraiser, I would be more comfortable putting the first contract price and sale between current effective date owner and buyer as the contract, and disclose/comment about the second assignment contract sent for analysis and its price. But I suppose it could be done either way.

 

[Mark K]

This is not a common practice but it is legal and often there are legitimate reasons for it.

I've seen purchase contracts assigned because the original purchaser was unable to qualify for a loan and he assigned the contract to a parent who then purchased the property under the terms of the original contract.

A few years back, a listing broker from the "city"(didn't know the local values) listed a 40 ac. tract of land in my area for a price about 30% under market value. I had a full price offer to her within about 2 hours and it was signed by the seller. The next day a local farmer offered me full price so I assigned the contract to him for the difference and he bought it. The owner of the contract was not happy about what transpired but there was nothing he could do to stop it.

As Howard said, unless the contract has verbiage that expressly prohibits assignment, contracts can be assigned. Just explain the chain of events in the appraisal.

 

[Mark K]

Delete. Tried to edit and double posted...