September 7, 2008

Couple more negative aspects on Rex Agreements

I wrote a while ago how you should avoid Rex agreements in the post : Rex Agreement = Bad idea. I just came across an article from the Seattle Times blog : A reader recounts Rex Agreement experience.

As the title says, the article has one persons experience with a Rex Agreement application. Two main 'gotcha's they found when doing a Rex agreement application:

1. There are penalties for early sale of the home: "Those who are interested need to read the "early out" penalty clause very carefully. If you sell your home within 5 years of entering into the REX agreement, the financial penalties are very substantial. In fairness to REX & Co., they do point this out as not a "short term" solution to financial situations."

2. The appraisal they got on their home value was well below market value. The appraisal from the Rex agreement company was $734k. He had an appraisal from a previous refinance that put the home at $810k. But a local mortgage lender said " that even a quick, cursory look showed at a minimum $765 to $775K" and his Realtor cited " a listing price for my home would be in the $790K to $795K range.". So it seems they under valued his home by $30k or more. This would matter quite a bit for a Rex agreement. If they set your initial home value low then when you go to sell the house later it will show extra appreciation. Since the rex agreement lender shares in the appreciation they'd cash in.

Say for example you own that home the reader has and it has a $500k first mortgage on it and they undervalue your house by $30k. Your house is really worth $765k and they appraise it at $735k. Then 5 years from now you go to sell the house. Lets say it appreciated a bit in those 5 years and is now worth $900k. The real appreciation would be $900k - $765k or $135k. You'd owe half of that to the rex agreement people so their real share ought to be $67.5k. But if they undervalue your home then the appreciation the agreement would show would be the sale price of $900k minus the low appraisal of $73k or $165. Half of that would be $82.5k. Thats a $15k difference you'd be paying out of your own pocket. Its 22% more than you would pay otherwise. If they were intentionally doing low appraisals on homes then that would be a very slimy way to squeeze more money out of people. Now to be clear I don't have any reason to think they're doing it intentionally. Maybe it was just a bad appraisal. But a low appraisal is definitely something to be on the look out for with a Rex agreement.

So there are two more reasons to stay away from a Rex agreement.

2 comments:

  1. dont assume the appraiser is corrupt

    YOU IDIOT

    ReplyDelete
  2. Maybe you failed to notice when I explicitly said :

    "Now to be clear I don't have any reason to think they're doing it intentionally."

    Jim

    ReplyDelete

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