Appraisal Came in Very, Very Low!

37 Replies

I put several duplexes on the market through a real estate agent for roughly $190K. We didn't pluck this number out of thin air. There was another property that had sold on the street a few properties away for $190K.....although it was a single family home. Same basic building structure, his was SFH, mine were duplexes. So, 2 days after they were placed on the market, we sold the first one around $190K. Then we sell 2 more in the 1-2 weeks also for $190K. So at this point they all show as pending in the MLS. The other day the appraiser for the first one comes out. He appraises the property for $125K. BTW, this is an FHA loan, people wanting to do a house hack. One of the other is an FHA as well, the third is conventional loan. So obviously, the $125K is a problem. My agent has submitted a rebuttal on the appraisal to the lender.

Anyone with suggestions as to how to approach this?  Frankly a 30% difference between an appraisal and 3 independent sales seems like the appraiser is ignoring the market.

EDIT: File this post in the "things you need to hear" bin, not in the "things you want to hear" bin. And this is my $0.02, feel free to toss it in the trash and do your own thing!

Three things:

  • Appraisers can't compare SFRs to duplexes any more than they can compare duplexes to space ships. It could not be more irrelevant what SFRs go for, period. 
  • You should be focused on "setting the comps" the way builders do, and selling them one at a time with a step-up in sales price each time (just like builders do), not all at once. 
  • Supply and demand... you put too much supply out there all at once. Why would you as a seller create what appears to be a fire sale of duplexes in the area????!!!! This is clinical insanity. 

I would cancel all of these listings, do my homework, and try again once I'm actually ready. 

The appraisers aren't the only ones "ignoring the market." Take that hand you have pointed at the appraisers, and note that 3 of those fingers - one per duplex - are pointed right back at you.

Good luck.

@Brian Pulaski No, the only one appraised so far is the first one at $125K. However, it was an FHA appraisal, which as I understand it goes into the system. I'm assuming that does not affect the other FHA positively. Not sure how it affects the duplex that sold with a conventional loan.

@Chris Mason Thanks for your comments. Not sure how I "ignored the market" or what I could have done differently. Initially we put the first one on the market, it sold within 2 days at $190K to a buyer with an FHA loan. I understand that you and other lenders believe it can't be compared to a SFH. But in this particular area there were no other duplexes of it's type sold. The SFH on the block that did sell was the same building that the owner converted to a SFH by taking a kitchen out, etc. Same identical structure. In fact, when these properties were originally built 100+ years ago they were all identical. They were all placed, as a group, into the National Register as historic buildings. We thought it was a decent clue for value. And actually, at the price, sold more quickly and had more interest than the SFH. There was no homework that I could have done that would have led me to go 5.5 miles away to find my comp. In fact, I could go 5 miles in another direction and find duplexes selling for twice the value. As I said, the properties are somewhat unique, as buildings go, hard to comp. But let's take your analogy of a "firesale". So yes, we had a firesale that took place at $190K. That looks like where the buyers, unrelated, found value. Why were not these values at least reflected in the appraisal? They were on the same block, not 5.5 miles away.

Originally posted by @Jim Piper:

@Brian Pulaski No, the only one appraised so far is the first one at $125K. However, it was an FHA appraisal, which as I understand it goes into the system. I'm assuming that does not affect the other FHA positively. Not sure how it affects the duplex that sold with a conventional loan.

@Chris Mason Thanks for your comments. Not sure how I "ignored the market" or what I could have done differently. Initially we put the first one on the market, it sold within 2 days at $190K to a buyer with an FHA loan. I understand that you and other lenders believe it can't be compared to a SFH. But in this particular area there were no other duplexes of it's type sold. The SFH on the block that did sell was the same building that the owner converted to a SFH by taking a kitchen out, etc. Same identical structure. In fact, when these properties were originally built 100+ years ago they were all identical. They were all placed, as a group, into the National Register as historic buildings. We thought it was a decent clue for value. And actually, at the price, sold more quickly and had more interest than the SFH. There was no homework that I could have done that would have led me to go 5.5 miles away to find my comp. In fact, I could go 5 miles in another direction and find duplexes selling for twice the value. As I said, the properties are somewhat unique, as buildings go, hard to comp. But let's take your analogy of a "firesale". So yes, we had a firesale that took place at $190K. That looks like where the buyers, unrelated, found value. Why were not these values at least reflected in the appraisal? They were on the same block, not 5.5 miles away.

I ran into this issue in Texas on all the flips I did there .. the appraisers were not up to speed with the market.. and at that price point almost all the buyers are FHA .. I exited the market... was not a good place for us to work.

I had a bad appraisal on a little house I was selling this spring.  It wasn't the value, but earth to wood contact noted.  The house was on a hillside of sorts and this started a cascade of full WDO reports and maps and all kinds of problems.

To get out of this appraisal and make it invalid, we had to wait 6 months. Sometimes it may be 90 days. I sold to them on contract/seller financing for a short time so they would just need a refi loan. Saved myself a bunch in title insurance, too.

I had no agent of course in my sale, but it could be an option. Sell with seller financing for 6 months and let them get a refi loan. Your sale will be the comp. Paying agents will probably not allow this to work, but it's what worked for me.

@Steve Vaughan Not bad advice. I will consider that. As you say, the agents would be an issue, but maybe I could work it out. How does the FHA appraisal on duplex #1 affect the other FHA sale? Do you know? How about the conventional sale?

Originally posted by @Account Closed :

@Steve Vaughan Not bad advice. I will consider that. As you say, the agents would be an issue, but maybe I could work it out. How does the FHA appraisal on duplex #1 affect the other FHA sale? Do you know? How about the conventional sale?

Who's to say how they will comp if they ignored the same house down the street because a kitchen was pulled, making it a single-fam again. Hopefully the same appraiser doesn't do all 3 LOL.

Curious, Jim. Selling three appreciated properties in the same year will make Uncle Sam and possibly your state very happy.  Are you using the 1031 tax-deferred exchange option? Or just eating it?

Actually my plan, such as it is, was to pay the tax.  Maybe I could enlist Uncle Sam to speak to the appraiser for me! Lol!  What do you think?

@Dennis M.  Obviously that could be the case.  But on the one hand on that street we have 3 duplexes sold to independent buyers all with their own real estate agents at $190K, and on the other hand, we have an appraiser who went ignored those sales and went 5.5 miles out of the area to find a comp for $125K. Frankly, I'd like to buy one at $125K myself!  Either way, a new piece of information today.  The lender agreed with my agents rebuttal when they did a review of all the facts.  They have now forwarded it to the Appraisal manager with the Appraisal company, who is having a panel of appraisers take a look.  We should find out their opinion in the next several days.  What this really comes down to is whether buyers and sellers make a market, or does an appraiser make the market.

Like Chris said, a duplex simply can not be compared to a sfh. The fact that it is the same house makes no difference. Even if the appraiser were to make a mistake and use a sfh, the underwriters would reject the appraisal.

When there are no comps of multis, you need to be prepared for appraisal problems.

Originally posted by @Account Closed :

@Russell Brazil Would there be any reason you would not want to use other sales of duplexes on the same street? There were 3 duplexes sold around $190K, they show as pending in the MLS.

 Pending, not closed. Only closed sales can be used. Pending sales you have no firm data as to their sales price, or if they will even close. Closed sales within 90 days are given preference, and must be within 180 days.

Originally posted by @Account Closed :

Actually my plan, such as it is, was to pay the tax.  Maybe I could enlist Uncle Sam to speak to the appraiser for me! Lol!  What do you think?

 Even though he has a vested interest in your profit maximization, I doubt Uncle Sam will be speaking on your behalf here. Would be funny, though! 

I spread mine out or will exchange.   Sold 3 smalls over 9 months since last June, stretching #3 into March of '18.  No more for me this year.  Worked too hard to want to play in a new bracket! 

@Jim Piper This happened to me. I made my agent take out that we accepted FHA and only showed it to Conventional buyers essentially. Eventually a conventional buyer came (way prior to the 6 month FHA appraisal expiration). It appraised as it should have. I did end up accepting a lower price than I wanted but not as low as the FHA appraisal. The way it sounds, someone conventional will come sooner than later. I hate FHA financing but have had only 1 bad experience with a low appraisal. It’s the worst feeling but it’s part of the business.

@Russell Brazil Actually I'm told that an appraisal can include closed sales, pending sales, or active listings.  it must have at least 3 closed sales.  Others can be used, and in this case, happen to be on the same street within buildings of each other ie pending sales.  All the information may not be known, but what they do know is the most recent and timely.

@Michael Kuo Thanks for posting that link.  Quite informative.  Here's what is happening now in this situation:

Challenge the appraisal. This option is a bit of a long shot. Only the appraiser's client — the lender — can demand a review of the appraisal, and only the buyer can request a review or a second appraisal. As the seller, you can support the buyer in this effort by sharing the competitive market analysis that you received from your agent or by giving her the results of an independent appraisal, if you have one. You also can offer to split the cost of a second appraisal if the lender agrees.

This route has long odds because the decision is ultimately up to the lender, and the lender doesn’t have the same investment in the transaction that the buyer and seller have. If the lender doesn’t have a compelling reason to doubt the appraisal, then that tends to be the end of the line. (In my experience, only a small percentage of these requests are granted.)

The buyer signed off on the request for a review.  Information has been provided by the listing agent.  And at this point, the lender is in agreement.  What remains is a review by a panel of appraisers.

@Account Closed . You'll have 4 Options with Low Appraisal. 

1. Sell at Appraised Price.

2. Buyer can bring the difference between Appraised price & Selling Price in Cash.

3. Buyer & Seller agree on something in between with Buyer bringing Cash to make up the difference.

4. Seller refuses to Sell at the Appraised price.

Once the Appraised Value is in the FHA System, it's in for 6 Months. And a New FHA Buyer will be subject to same Appraisal Price for the next 6-Month period. Would not pertain to a Conventional or VA Buyer.

There is an Income Approach to Value on the Appraisal Form, and the Appraiser should have completed this section as well. Appraiser has the option of picking which approach they feel is most appropriate in establishing the value. 

Void the Sale, You just got screwed over.  

"There were 3 duplexes sold around $190K, they show as pending in the MLS."

LOL