Bank Loans – Does Buyer have enough Equity ?

equity r

For the last year and more frequently for the last six months, we’ve seen the increase of Investors / Buyers who want to purchase a property through a “Bank Loan” for various reasons.  This has somehow affected the transactions in a way and the most obvious is the fact that some Buyers rely on the high appraisal and release of bank loan to finance their purchase ( this was still possible about 3-5 years ago ).

Unfortunately, most of these Buyers aren’t aware of the “cooling measures” ( similar to what Singapore and Hongkong have done as far back as three years ago to prevent what is called a “Property Bubble”).

Now how does this affect current real estate transactions ?

Upon submission of an Offer to Sell or Letter of Intent, the Seller then either accepts the offer or submits a “Counter Offer”.

If accepted, the documents are then submitted to the Bank ( Title, Tax Declaration, etc ) for Appraisal, this can take anywhere from five business days ( depending on the relationship of the Buyer with the Bank ) to 20 business days.

The Bank then goes and appraise the property.

In this particular case, the Selling Price is Php 15M, however, the Bank’s appraisal was only Php 8M.

The Buyer didn’t have enough equity to pursue the purchase as Banks are now required  by Banko Sentral to be conservative on their Appraisals and to release only 50% or 60% of appraised value which means more Equity is required from the Buyer.

Moral Lesson :  It’s best to ask the Buyer from the very beginning if they are solely relying on the Bank Loan and don’t have much equity to purchase the property.  This would save everyone’s time and effort and also eliminate the frustration and expectation of the Seller.

As always, if the Seller hasn’t accepted an Earnest Money from the Buyer, the property is open to any Buyer.  Any Earnest Money given should also be forfeitable due to lost opportunity on the Seller ( this of course, is a case to case basis ).

Hope this clarifies any issues you may have on Bank Loans and forfeitures on Earnest Money received on a purchase of a property.

Have a great day !

robert

Robert G. Sarmiento Properties
Professional Affiliation :
Real Estate Broker’s Association of the Philippines
President, Greenhills Chapter 2008-2009
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