Extremely low appraisal

8 Replies

I've been searching and grinding and finally got my first fourplex into escrow. Asking price is 375k and today the dreaded appraisal came in at 300k. How do I tell the seller the property is way over priced when they think it's worth 400k?

@Brandon Thomas I would sit down with them and show them the appraisal.  If they are still insistent on the $375k, see if they are interested in seller financing it to you.

@Wes Eaves I'm new to rei other than buying and selling my house. Is it common practice to purchase mfh at 75k over appraisal value? 

The first thing to do would be to show him the appraisal as Brandon mentioned. Bring any other support along that you can find. If that doesn't persuade him, it's probably time to walk. 

Brandon,

The market the property is located in will matter heavily, and the urgency of the sell.

For beginners, look at the appraisal, and the comparatives that were used. Assuming you are familiar with the area, given this new information, consider reassessing the true market value of the property. 

A few things to also consider is what you are competing against, assuming you have concluded the property is actually worth more, to you, vs. what the bank will pay. I bring this up, as you can leverage this appraisal to lower the price, because unless your in a hot market with cash buyers, and people who are seeking creative investment strategies, the seller may very well feel as if they either sell at market price, or continue to hold on, until the market, in their region increases in value. Unless, they are desperate of the monies.

Lastly, consider what type of cash flow you will generate. If the numbers make sense, you may want to over pay on the property

If you ask me, based on what you've shared, I ask the owner to sell at appraised price, since as far as I'm concerned, that's what it's worth.

I do a lot of 4 units, so if you have specific questions, feel free to reach out.

Good luck!

Originally posted by @Brandon Thomas :

@Wes Eaves I'm new to rei other than buying and selling my house. Is it common practice to purchase mfh at 75k over appraisal value? 

 The value of something is what someone is willing to sell it for and what someone is willing to buy it for...that's it.  A lot of people get caught up in what an appraiser tells you a property is worth and base all their decisions off of this.  Feel free to PM me if you'd like to discuss further.

@Brandon Thomas I agree with @Wes Eaves . Take the opportunity to entertain seller financing before walking. You could purchase at 300k and do a 5 yr term that could pay the seller enough interest to put around 375k in their pocket at the end.

There are still possibilities!

I have not experienced an appraisal that was lower than the offer price personally.  I always try and remember one of the golden rules:

"You make money in real estate when you purchase."

Since you would be paying 75K above the appraised value this is outside of my comfort zone.  

Thanks for all the advice and input. Trying to  sit down with seller and show them what the property is worth. Although I plan to buy and hold I'm concerned with the future of the next appraisal if I want to sell. Like  Barbara said "you make money in real estate when you purchase." 

It will come down to the sellers sense of pride and sense. Thanks again

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