I am supposed to close on a triplex next week and the appraiser and bank have an issue that will likely delay all of that. The appraisal came back higher than the purchase price but was apparently "conditional" on several health and safety items being repaired. I didn't realize that they could do this for conventional loans, really it strikes me as kind of stupid. So that's the background. I take it from previous posts that appraisers can do this though its a questionable practice.
My question is what is the banks role in all of this? Can they still finance with this type of conditional appraisal? The financials are clear so what's the big deal for them? I'm putting 25% down, payments will be like $500 a month, current tenants are long term and easily cover all expenses etc. even with an entire unit vacant not to mention I have a job that would pay for it, money in the bank blah blah blah. Could they set up an escrow for repairs to be completed within 60 days of closing for example? Should I shop my loan at this late date and if I do will it matter?
All the issues the appraiser listed were thing I was going to fix within the first two months of ownership. I've already been lining up contractors and have even had a contractor in there to bid already. The appraiser only mentioned a fraction of what I see and I plan on improving the property generally.
The seller is an estate and I do not want to burden the executor, who is not a family member, with having to line up repairs. I agreed to buy "as is". I don't mind paying for repairs but it seems stupid for me to pay for repairs on a property I don't own. Any ideas here? Do I ask them to sign something saying I am the "contractor".....I pay for or do all repairs and only go back to that signed agreement if for some reason the deal doesn't close?
As for the repairs, most are pretty minimal CO Detectors, Outlet Covers....
The main part that has me PO'd is that the appraiser wants someone to install sheetrock over leaky pipes to create a firewall in the utility room. Order of operations suggests that leaky pipes should be repaired first. So stupid. If I find myself pulling out brand new damp drywall a month from now that had to be installed just to get the loan closed I'll be shaking my head for sure...
Ideas for how to best deal this? It is a personal priority of mine to inconvenience the estate executor as little as possible.
Nothing unusual here, conventional is very similar to FHA in these matters. Bottom line, the property is not financable in it's current condition. Usually repair escrows, for work required to be completed After closing, is withheld from the seller. I believe you could put cash into escrow, since you're going to do the repairs anyway, and have them released upon completion. Your lender can tell you. Otherwise, get final approval, title search, etc. and then once you know you can close, do the repairs in advance.
The decision is the banks. The appraiser merely tells his story and the bank chooses how to move forward. Take your bids from a licensed contractor to the bank and escrow the funds to complete the repairs. The bank should be willing to close with that done. Then, in the event the sale fails you get your money back without paying for the work in advance.
Thanks for the advice gentlemen. Both options will work for me. I like the escrow idea better. My realtor told me that the bank said no to the idea of escrow. I'll write it up a little better and resubmit with a more personal plea. I happen to have already lined up contractors to come in this coming Monday, well before any of this came up (two days ago). I will shop the loan just in case. I will see if the estate or listing agent have an idea as well.
The conditionals were listed as "health and safety". Does that paint the bank into a corner liability wise? If so I'm more sympathetic than I will be if it turns out that they are not willing to escrow with guarantee of completion of the work because why?........they don't want to? The bank's risk on this deal is pretty close to nonexistent otherwise.
So.....is "health and safety" the words a bank can't see or is that all escrowable regardless of the "health and safety" designation?
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.