Appraisal came in way higher than purchase price

10 Replies

Hey Everyone,

This is my first post so hopefully I am in the right place. I am in contract for a fourplex in an up and coming neighborhood. While my neighborhood is still being refurbished by the local community the surrounding areas are pretty well off, lots of attractions etc. Hence, I bought in the area hoping to house hack and let it appreciate over a long time. The home inspection was clean, mostly small ticket/cosmetic items but the plumbing, electric, roof, and all that are in good condition. Today the appraisal came back...utilizing an FHA loan I am apparently in contract for a price that is $115,000 under the appraisal value and we're talking about a sub $200,000 My realtor and lender say this is great news but I am on here to ask you all if there is an angle I should be looking out for in this matter. I just don't understand how this much of a discrepancy could occur or what it's implications are for me financially.

~ Michael

Originally posted by @Michael McDermott :

Hey Everyone,

This is my first post so hopefully I am in the right place. I am in contract for a fourplex in an up and coming neighborhood. While my neighborhood is still being refurbished by the local community the surrounding areas are pretty well off, lots of attractions etc. Hence, I bought in the area hoping to house hack and let it appreciate over a long time. The home inspection was clean, mostly small ticket/cosmetic items but the plumbing, electric, roof, and all that are in good condition. Today the appraisal came back...utilizing an FHA loan I am apparently in contract for a price that is $115,000 under the appraisal value and we're talking about a sub $200,000 My realtor and lender say this is great news but I am on here to ask you all if there is an angle I should be looking out for in this matter. I just don't understand how this much of a discrepancy could occur or what it's implications are for me financially.

~ Michael

This is awesome news! Some of the more financially liberal investors on here would say "awesome, do a cash out refinance in six months for some tax-free money that you can use on a down payment for another one!" while the more conservative ones would say "awesome, have a glass of champagne and carry on with your life!" 

In the middle of the two would be me -- assuming the "Era of Historically Low Rates" does not choose exactly the next six months to end, I'd suggest a rate and term refinance in six months to get out of FHA and drop the mortgage insurance.

Wow, @Michael McDermott . Nice find.

It is my experience that the property usually appraises right smack dab at the offered price, so congratulations!

And I'd go with Chris Mason's advice for a rate and term refi. If you've got PMI, get rid of it when you can. It may be tempting to cash out, too but make sure you dont' take on more debt than you are comfortable with.

Ditto. Drop the PMI as soon as the 6-month seasoning is up.

@Chris Mason any thoughts as to whether something with that much of a price variance might set off some alarms for the underwriters as to the accuracy of the appraisal?

That's awesome! As an appraiser, sometimes that happens.

My highest was 10% over and I was estatic. With yours id throw a party!!

Originally posted by @Russell Brazil :

@Chris Mason any thoughts as to whether something with that much of a price variance might set off some alarms for the underwriters as to the accuracy of the appraisal?

 I had one a while ago where it set off a QC alarm thingie that took 2 days to resolve, but this was concurrent with other things so didn't delay closing. 

Thanks everyone.  I closed on my first property this past Thursday!  It is a multiplex in midtown Indianapolis and I am excited to get started on the real estate journey.  I am going to follow your advice, refinance in six months, but until then spend the winter renovating   : )

@Michael McDermott Congrats on landing your first deal and on the immediate equity you've realized. Nice work. How did you find the property and where exactly is midtown Indy? Not familiar with that neighborhood. I hope to eventually "house hack" a multi unit property as well; exciting stuff.

personally I would say meh

Not awesome as the new tax rate max reflect a much higher value than what you paid 

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