FHA 203(K) Appraisal Mess

7 Replies

Hey All -- 

Was hoping to get some opinions/solutions for what I can do here. 

I'm under contract to purchase a duplex -- financing it via FHA 203(k). Purchase price $191,000 and was approved for $125,000 in rehab ($316,000 total). Everything was going smooth until the appraisal was ordered. These FHA 203(k) typically only require an After Repair Value (ARV) appraisal & that's what was ordered.

The ARV appraisal value came back at $288,000. This was a really low number for the area, but FHA allows the ARV value to be 110% of (purchase price + renovation dollars) so it checked out. However, the appraiser opined on the "as-is" value in the ARV appraisal report (although it was just 1 sentence in the addendum section) and claimed it was $70,000. I honestly thought it was a typo. Nothing trades anything close to that low. My realtor friends in area were baffled. Anyways, that "as-is" value caused major issues for the bank. If the appraiser simply omitted that 1 sentence from his report or was fine using the purchase price as the as-is value, the bank had no issues. But as a result, the bank's new condition was for me to make up the difference ($121,000) at closing, which I obviously don't want to do.

My immediate thoughts were to get a new ARV appraisal. But unfortunately FHA guidelines don't allow that. Bank said my only option would be for me to use same appraiser and pay for a separate "as-is" appraisal & hope he somehow changes his mind from $70K to closer to $191K. Granted he'd need actual comps now, but I don't have any faith here.

Sorry for long story. Looking for some solutions.  Closing is scheduled for 12/1 so running out of days here.  Seller is getting incredibly frustrated as I've already had to delay closing multiple times -- real chance they could walk after 12/1.  Would be all cash offers at that 191K price. 

Thanks all. 

@Keenan K. Maybe this should tell you something.  What are the comp prices for nice condition duplexes in your area?  I'm guessing they are closer to the appraiser $288k rather than your $316k, plus closing costs, all in number.  You always want to be below appraisal, in costs for the finished product.  $125k in rehab, $62,500/unit, sounds like a crazy amount of rehab, unless it's almost a tear down.  Either that, or it sounds like you are vastly over improving the property, or paying some really crazy rehab prices.

Thanks for the responses all. Just a quick update here. An "As-is" appraisal was ordered and the appraiser declined/refused to do the assignment. Pretty amazing that a 1 sentence opinion on the "as-is" value buried deep in addendum section of the ARV appraisal report is forcing me to bring an extra $121K to closing if I go that route. Can't even get 1 comp provided to me to support the unheard of low as-is value. Incredibly frustrating.

@Jamel Williams You can definitely do at least duplexes with FHA 203(K). Obviously you would need to occupy 1 of the sides though. I can't speak to triplexes/quadplexes. But my best guess would be that it could be up a quadplex for FHA. After 4, you'd be getting into commercial

You can do 1-4 units for 203K loans.  Our firm did 100s of these back in the 90s and early 2000s.  They used to do investor 203Ks.  As for the appraiser, we used to be able to provide comparables to help with values, but thinks have changed since 2010.  I would think with 121k extra, you might go in a different direction on the financing.  Keep us informed on what happens.