Price Reductions at Subject Removal

The issue of price reductions after you have negotiated your initial offer to purchase,  is an important one to be aware of before you remove subjects and give your deposit.

The negotiation of a price for a property can sometimes go on after the initial contract is written. The cause for the renegotiation may be due to any number of reasons; for example, landscaping encroachments, repairs that must be done as a result of a building inspection, septic or well issues, etc.

Often, the new price is written into an addendum to the contract, at the same time that the subjects are removed. A better & safer practice is to have the addendum drafted, and then shown to the lender for their approval first, before the final deposit is given and subjects are removed. This should happen regardless of the amount of the price reduction.

The reason for this is that the reduction in price may trigger a change in the loan amount, and may also cause the lender and/or high ratio insurance provider to re-examine the approval if the price is reduced due to structural issues with the property. If the lender cancels the approval, then the underwriting process has to be initiated all over again to find a new lender and/or insurer to approve the mortgage & the property. If the repairs to the home are substantial, the financing may have to be changed to a purchase plus improvements mortgage which is a different process altogether.

A simple, but important detail to be aware of up front before you make your purchase contract firm and binding.