Financing Addenda

NWMLS Addenda and Contingencies for Purchase and Sales Agreements

Financing FAQs

How do I waive financing?

You have options:

Not including a financing addendum. This means your offer is not contingent on financing. However, if you are getting a loan and need access to the property for appraisals and the like, you will want this defined.

22AA and 22AD. These form allows you to let the seller know the offer is not contingent on financing, i.e. if it falls through buyer owes earnest money, but you will be getting a loan and need access for appraisals and the like.

Why should I bother with MLS deals?


From analyzing 13,000 flips in greater Seattle-area since 2002, we find that on average, MLS-purchased flips sell for 1.8x their purchase price compared with 1.6x off-market and 1.4x at foreclosure auctions.

While we do not know the condition of these flips, we think if anything MLS-purchased flips are in better condition, not worse. Furthermore, off-market deals often have an assignment fee and foreclosure deals have a commission paid on top of the purchase price, which makes MLS deals even more favorable than the numbers suggest.

Our guts tell us that this feels off, and to some extent this is true. The opportunity for luck is greater in these markets, and the top 10% of off-market flips perform better than the top 10% of MLS-purchased flips. Nevertheless, the MLS still presents a meaningful buying advantage for rehab investors.

This suggest there is more supply (deals) relative to demand (competing buyers) when shopping for deals on the MLS versus off market or at foreclosure auction.

From a supply perspective, 4_% of historical flips were purchased from the MLS versus 3_% off-market and 2_% at a foreclosure auction. With more supply, the MLS can absorb more demand.

From a demand perspective, we can say there's roughly 87% of the relative demand off-market as measured by the resale multiples (1.4 / 1.6). Because there are 1.25x more deals on the MLS than off-market (4_% / 3_%), we can deduce there is about 1.09x more demand (87% * 1.25).

In other words, there is 1.09x more demand on the MLS, but 1.25x more supply to absorb it.

We can't say for sure, but we have some theories as to why there is less competition on the MLS than it might appear.

For starters, prospective homeowners cannot easily finance properties that need repairs, and when they do compete it is normally for cosmetic flip opportunities. Many sellers also over price their listings and end up accepting a lowball offer—think of it as a hidden supply on the MLS.

The demand for off-market deals is also is also higher than it appear. From intuition and the advice of others, investors gravitate to the idea that buying off-market or at the auction is less-competitive. The problem is that everyone thinks this way.

In many cases, investors are purchasing overlapping mailing listings and calling on the same FSBO directories.

This is not to say you should only pursue MLS-listed opportunities. Rather, we believe the MLS should be an active source of opportunities for serious investors. From analyzing 13,000 flips in greater Seattle-area since 2002, we find that on average, MLS-purchased flips sell for 1.8x their purchase price compared with 1.6x off-market and 1.4x at foreclosure auctions.

When do I use the 22EF (Evidence of Funds Addendum)?

The Purchase and Sale Agreement paragraph a states that the buyer must disclose any contingent funds they are using, not counting the loan in the Financing Addendum (e.g. gift from a parent, sale of stock, etc.). If they use contingent funds and do not disclose it, they are liable for fraud by misrepresenting their financial contingent.

The 22EF allows the buyer to disclose the non-contingent funds (cash in the bank) after mutual acceptance instead of before hand.

How do I know which type of loan my buyer is taking? Can the buyer change the loan type?

Talk to the lender and buyer. It is very important to make sure that you are correct the first time because if you need to change the loan type you need to get permission from the seller in a change of lender form 22AC.

How long does the buyer have to make a decision on which lender to use?

Typically most buyers have their lender selected with a pre-approved letter before the offer is made, however they may not have submitted their completed loan application - the defaults on the forms says that they have 5 days to finalize their application.

What is a notice to perform?

The seller may request the buyer to waive their finance contingency 21 days after mutual acceptance. If the buyer is not ready, the agreement terminates and earnest money is returned to the buyer.

Do you have any job openings?

If you are amazing, we want to know. Here is a list of current openings, and we are always open to unsolicited pitches.

Financing Forms

Financing Addendum (22A)

This is the main financing addendum.

Use this addendum to (i) make your agreement contingent on being able to obtain a certain loan, and (ii) to define the seller's contribution to loan related origination fees.

Section 1

Loan Type

This is where you define the type of loan the buyer will be applying for, e.g. FHA loan with 3.5% downpayment, conventional loan with 20% downpayment, etc.

The first set of boxes are the loan type. If you are unsure what the loan type is, ask the lender. On line 9, you define the down payment, either as a dollar amount or a percent. Check the appropriate box and fill in the number.

If the buyer changes the type of loan they are applying for, then the purchase and sale agreement is no longer contingent on this addendum. This does not mean that the buyer cannot change loan type, it just means their earnest money will not be able to protected by this addendum if something goes wrong with the loan.

Typically, sellers prefer offers with higher down payments.

Section 3

Seller Contribution

At the top of page 2, section 3 defines the seller's contribution to the buyer's loan original costs. If you leave it blank, the seller contributes no money.

How much to put is part of the negotiation. The number is the maximum the seller will pay. If the actual costs end up lower, the seller pays less, so it is important to not overestimate this number too much.

Tip: The buyer and the lender should work together to determine how much this should be (ideally, before any negotiation realities).

Section 4

Earnest Money

If the buyer cannot get financing for some reasons or another, the buyer can get their earnest money back if the lender provides three things that you then send to all parties (listing agent, listing firm, selling firm, and escrow officer).

Section 4 of the Financing Addendum states:

"The Earnest Money shall be refunded to the Buyer after lender confirms in writing (a) the date Buyer's loan application for the Property was made, including a copy of the loan estimate that was provided to Buyer; (b) that Buyer possessed sufficient funds to close (e.g. down payment, closing costs, etc.); and (c) the reasons Buyer was unable to obtain financing by Closing"

These must be in writing by the lender, either in an email or preferably in writing, signed, on their company letterhead.

Appraisals and Waiving Financing

By default, if the appraisal is below the purchase price, the buyer has the option to rescind on the contract and get their earnest money back with the form 22AN.

In competitive offer situations, NWMLS forms AD and AA allow the buyer to waive different parts of the financing contingency related to appraisals.

Form 22AD

Increase Down Payment Addendum

This form is used either during the offer or mid tranaction.

It allows for the buyer to increase their downpayment in the event the appraised value comes in lower than the purchase price.

If the buyer using a financing contingency (22A), this form specifies how much the buyer is willing to increase their earnest money in the event of a low appraisal.

If the buyer is waiving their financing contingency but still needs access to the property for an appraisal, they check the second box and send this in along with the 22AA.

Form 22AA

Appraisal Addendum

This form in part allows for the buyer to make their offer not contingent on financing, but still get access to do inspections for the purposes of obtaining a loan.

In other words, if the buyer cannot financing, their earnest money is not protected, but they still have the access rights they will need to try to get financing.

In order to do this, buyer must still specify the kind of loan they are trying to obtain, including their