Creating Wealth Through Real Estate

It has been way too long since my last blog post and I apologize as I have just been swamped with work. So this post is to sweep the dust off my blog and also update you all on our Granada Hills REO flip.

We had multiple offers in the first three days several of which were over asking price. We accepted one at $485k (ask price was $480k and started a 30 day escrow with our conventional buyer who was placing 20% down. After approximately two weeks, just shy of the 17 day inspection/appraisal contingency expiration, the buyer's appraiser came back with the figure.

To our dismay, the buyer's, the buyer's agent, and us, the home was only valued at $450,000! This comes after showing evidence of true and real comps (within 1/2 mile, most within the same subdivision), all within the last 3 months, that the value was indeed in excess of the $485 offer price. Again, we have an able and willing buyer wanting the home at that price and the damn HVCC steps in with their overly conservative appraisers who just don't get it and through out a number $30,000 lower.

Since we were very confident that the appraisal would come in at least close to the offer price, we did allow the contingency. Now we had three choices. Let the buyers walk, have them come to the table with $30k more to cover the difference (which they were not willing to do), or start negotiating.Now the negotiations re-started between us (the sellers) and them (the buyers) To start over and go to the next buyer and start a new 30 day escrow would have wasted another 3-4 weeks, so it was in everybody's best interests to resolve the issue. The result was that we were to reduce the purchase price to $477,500 and convert the front two bedrooms into one master suite. I agreed to do this, take the hit, and just move on.

We did have the room in this deal because we bought right, did a lot of the work ourselves, and were able to control the repair budget and keep it lower than most could do for the work we did. The place was a palace in case you didn't see the videos.

This decision was also based on the concept that by taking less profit now, we could get our money back out of this home and into others which would yield more income. Starting over may have got us a higher ask price, but we would still end up with a potential appraisal issue again (which would be resolved by not allowing that contingency), and we would lose out on another 3-4 weeks were are money was earning nothing.Let this be a lesson to all in this ridiculous appraisal market. Make sure you either do not give the appraisal contingency, or limit it to only 5-7 days, or have in place a stipulation stating that no matter what the appraiser come back with, the buyer is responsible for any difference. This could in fact reduce your buyers pool, but then again, it is such a large pool these days that it appears to be worth it so far.

William Barnard is Managing Partner of Nationwide Property Investments, LLC and President of Barnard Enterprises, Inc. Will participates in millions of dollars in real estate transactions each year and has experience in nearly every aspect of real estate investing, including REO rehab flips. Join his next "Make Me An Investor" program by going to www.nationwidepropertyinvestments,com/education and start your journey to creating wealth through real estate!