Here’s a mailbag question, based on actual questions I receive (except it sounds better coming from a seller rather than agents who ought to know the answer) …
“We’ve made an offer on a home and the seller wants us to provide a Loan Status Report for the sales price. But the one we gave them shows that we qualify for more than what we negotiated. Why do they need a new LSR?”
In Arizona, the Loan Status Report provides the details of the loan the buyer is trying to secure to purchase a property. If after a good faith and diligent effort the buyer is unable to obtain the loan as stated in the LSR, they have the option of canceling the contract and regaining their earnest deposit.
The reason why the loan amount on the LSR needs to match the negotiated sales price is that it’s impossible for the buyer to obtain a loan for a higher amount than that for which they’re purchasing the property. For example, if they’re buying a home for $250,000 and the LSR says they’re obtaining a loan for $275,000, the buyer has an automatic out - they will not be able to obtain a loan for $25,000 more than the purchase price.
Many people confuse the LSR with an old-fashioned conditional loan approval, which would start how much the buyer could qualify to purchase. But an LSR is not the same thing as a conditional loan approval, in either usage or substance.
Two more fun facts about the Arizona LSR:
1) The only part of the LSR that matters from a contract status is the top half that is completed and signed by the buyer. The bottom half, which is completed and signed by the lender, has no contractual weight. A seller would be crazy to accept only a half-completed LSR, but that’s the top half is the only section that’s contractually required.
2) There are two LSRs currently in use. For those agents who use ZipForms, a web- or software-based program with the most current versions of all the AAR forms, their LSR includes language requiring the buyer to lock their interest rates and points during the inspection period.
Very few of the LSRs I’ve been seeing are on this new version of the form. And so I’ve started countering offers that include the old LSR with a clause stating an LSR for the full purchase price needs to be provided on the new form, else the clauses from the new form (which I then spell out) are included as part of the contract.
If the new form were used it wouldn’t be necessary. But as a listing agent, it’s my duty to protect my seller from potential buyers who discover four days before closing that interest rates have risen and they can’t qualify for the loan on the LSR.
Do you have a question about the AAR Purchase Contract or anything else regarding Phoenix real estate? Send us an e-mail and we’ll be happy to help.
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Tags: AAR Purchase Contract, Phoenix Market, General Real Estate, Tips for Sellers, Tips for Buyers by Jonathan Dalton
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