Sold a Flip, Now Buyers Lender Wants to See Documentation from me???

17 Replies

So I sold a flip and will be making just under 40k. I am supposed to close in less than 2 weeks and I got a call today that the buyers lender wants to see "documentation" on what was spent on the rehab. The home was bought in Dec 2013 for $47,500 and the sales price is $121,000.

What do I need to provide the lenders?

Since I am making a good profit do I need to be more vague on what was spent and where?

Anyone else experience this before?

THANKS

This is common, especially with FHA loans originating less than 6 months since the previous sale. I just provide them with a list of repairs and improvements and estimated costs for each. I think one lender asked for receipts as well. The underwriter is just verifying that value has been added to the property to justify such a price increase vs. the price being artificially inflated.
How much did you put into the rehab if you don't mind sharing?

Around 30k. House was a wreck when we got it and the majority was cleaning nicotene off of every square inch. New paint, laminate floors, new cabinets, granite, new tile and finished the attick space to create a 3rd bedroom/bonus room.

Ditto to Andy's comment. FHA is unreasonably paranoid for some reason about the level of rehab quality on flips. Weird, but in any case, if you could submit a list of repairs- maybe exaggerate but don't fabricate- that should definitely suffice. Is this regarding the appraisal or the loan officer personally asked for this?

Buyers lender but it isnt a FHA loan

If you can list and give approximate costs for the 40K I don't think you have anything to worry about. Has the home already been appraised?

Provide what they ask but don't provide any fraudulent info.

Joe Gore

Very common in FHA loans, not so common in conventional loans but each lender has their own overlays and guidelines. I've provided this several times. Just make sure to have receipts to back up the numbers you give the lender.

You might consider providing before and after pictures along with the itemized scope of work performed. You could itemize the work into specific areas such as painting, electrical, carpentry, roofing, drywall, flooring, appliances, caulking, plumbing, trim, siding, etc. in order establish the amount of work involved in the restoration. If you performed some of the work yourself there is a value for your time as well, that should be included in the scope of work, don't forget management time. You should be able to come up with realistic cost estimates to satisfy their requirement.

Today I got a phone call saying that a 2nd appraisal would be necessary despite the 1st appraisal coming out above the sales price. The buyers agent asked me if I was okay paying for it and I said no. The buyers agent responded "okay we will see what the buyers say about this." I lowered my asking price and I am not shelling out more money so the buyers can qualify for a loan.

Keep in mind this is NOT a FHA loan. This is a mortgage for a 2nd home and they will be owner occupants.

Why is this happening? I thought only the FHA played these games.

@Brant Hampton,

I understand you are a new comer. What is $200 or $300 for appraisal sense you will be making $40K? Furthermore, if they are asking for a 2nd appraisal that means the lender think the home is over price. If they decide to walk so will that big payday you are looking forward to. A bird in the hand is better than 2 in the bush.


Joe Gore

Originally posted by @Joe Gore:
@Brant Hampton,

I understand you are a new comer. What is $200 or $300 for appraisal sense you will be making $40K? Furthermore, if they are asking for a 2nd appraisal that means the lender think the home is over price. If they decide to walk so will that big payday you are looking forward to. A bird in the hand is better than 2 in the bush.


Joe Gore

Let me also tell you that the buyers didn't pay for the home inspection. There was another buyer before them that paid for the inspection and then backed out. It blows my mind that I could accept a lower offer than asking and still have the buyers asking me to pay for anything. Not to mention I completed nearly 30 different repairs/requests that they wanted... none of them deal breakers.

I was in the exact same situation earlier this year. At first I thought that paying for the second appraisal was BS but, of course, I relented and paid for it. The house closed, I banked my profit and haven't thought about it until I read this post. Just pay for the appraisal. Who knows, if you play hardball on this deal whose to say you won't find yourself in the exact same situation with the next buyer.

I would tell them they should pay for it, and you will reimburse them out of closing proceeds (if in fact you are willing to pay for it). Then if they don't close, they end up paying for the second appraisal.

Reminds me of my favorite quote:

There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences.
- P. J. O'Rourke

You have every right to refuse to pay for that second appraisal (I'd probably do the same thing)...just make sure you don't complain if the deal doesn't close because of it...

I've been asked for a list of repairs but not for numbers. I made a big list and put down everything I did in great detail and made the house seem incredibly disgusting and in disrepair when I bought it (which it was). They were impressed with my list and we closed without a problem. They probably pitied me for being foolish enough to buy such a wreck. This might work for you. You don't want to give numbers if you don't have to. The underwriter at a 9 - 5 office job may think it's unfair that you're making $30k, even though you risked and earned every penny.

In case anyone is interested I refused to pay and so did the buyers. The lending company ended up agreeing to pay for it.

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