BiggerPockets

I purchased an old 1920's Craftman-style home for $69,900 in October. It was in poor shape. The siding was in need of major paint removal and repair, the foundation needed to be put on cement piers instead of wood, the kitchen and baths were totally gutted and replaced with new cabinets, granite, stainless steel appliances, you get the idea. The city had red tagged the property for multiple code violations, including the unpermitted apartment that was built in the garage. After about 2 months of rehab costing just under $20,000it looked gorgeous and was ready for the market. It was listed and immediately had eight offers (all FHA) submitted. We went with the strongest offer, which was for $157,000 and only asking for 2% closing costs. The first appraisal came in at $157,000. But since the sale price was more than 100% of the recent sale FHA automatically orders a second interior appraisal. This second appraiser brought it in at $133,500, using comps that were un-repaired bank-owned instead of what he should have used which was move in ready repaired comps. So now they are telling me I have to either reduce my price to $133,500, or cancel escrow and try to find a non-FHA buyer (since the appraisal attaches to the FHA file, I am stuck with this appraisal on file.) Does anyone have experience or advice on another step I may be able to suggest?

I don't have an answer for you, but am going to watch this thread closely to see the outcome. I could potentialy be in a similiar situation on a flip - bought it for 14K, put 12K in it and have it listed for 60K. My asking price is very competitive for the neighborhood. I have an underlying fear that something like which is happening to you, will happen to me. I'm hoping for an RD or conventional buyer....

I was thinking the RD to Mark, has to be a rural property though. Summerhome have you considered taking the FHA for 133,500 and a Note for the rest? Caution though, the Note would be in the second position and not normally worth as much so write under terms a Note investor would like on a second. Herbster

OK, what kind of financing do you havee on it now? Bill

Those are sort of TV numbers on profit, but not too far off. With FHA it is rare not to have to pay 2-3% toward closing costs. Then there are escrow fees, title fees, home warranty, insurance, utilities. That would put it closer to a $30,000 profit. Not bad, I agree, but I have multiple FHA offers above $150,000. To lose $24,000 just because is pretty frusterating. It feels like the government being able to access your bank account and withdraw money, but I should be happy that they only took 1/3 instead of all of it. That extra 20k is my mortgage for the entire year on my primary residence! That would feel good to have the entire year of mortage payment while still in January.

I have to agree with Curt. I could stand to make more on mine, too, but since I know that the appraisal is going to be a serious hassle, I've decided to mitigate the complications and just reduce the price.

Herb - the house DOES qualify for an RD, so that's a good thing.

Good luck with that!

Second notes commands a large discount. Especially one that is not seasoned. If the borrower defaults, that note will be easily wiped out because the first will accrue interest, late fees, and foreclosure cost. Don't waste your time. Take the 38K and move on to the next one.

Message me if you want, I've dealt with this a couple times. For the next property, I would suggest pulling the lockbox right off the house and meeting the appraisal at the house. Bring your multiple offers, before and after pictures, copy of code violations and city clearance etc.

Options 1:
Have the original appraiser file a "rebuttal." He can challenge the appraisal the review appraiser did. I can send you a copy of a rebuttal one of my appraisers did.

Option 2:
We have buyers pay over appraised value often. It has to be disclosed. I am guessing this buyer does not have the funds. I am pretty sure you can carry a second if the buyer is willing and it is disclosed.

Option 3:
I don't think the review appraisal gets tied to the property. Just the first appraisal, but I might be wrong. It might be worth it to check on this.

It is tough right now.

See if you can pay for another appraisal and make sure it comes in higher sometimes they will allow this but not usually.

Brian Haskins