Duplex under-appraised (20k)! Trying to buy. Now what??

16 Replies

Hello everyone. 

I found a nice duplex that my fiancee and I love. We were really looking forward to moving into after we're married in ~6w. 

.

Mortgage company did an appraisal and it appraised for 92k and we have it under contract for 112k. 

.

What do we do now? I don't have the financials to bring 20k to the table. I'm purchasing it with 3.5% down thru an FHA loan.

.

I'm not 100% sure the appraisal is an accurate representation. Another duplex near sold for 136k this month near it which equates to $74.73/sq.ft.  At our price we agreed to, it's $80/sq.ft. which is more expensive. However, if we analyze our property at that rate that yields a purchase price of ~$105k....not $92k. 

.

The seller bought this property for $99k in 2002 (or 2004...I dont recall which one).

Any thoughts on how to proceed? I requested a new purchase price of 92k. He declined (as expected). 

Thanks in advance,

Nicholas 

@Nicholas Morgan You can request the seller match that (already did that) or get the appraiser to change their mind (going to be hard to do) So in this case most likely this deal is dead.

Did the property really under appraise or did you agree to buy an overpriced property? By your own assessment of the comps the actual value is at lest $10K less than what you agreed to pay for. If I were you Id pass on the property. Sit back and let the seller come back. If it didnt appraise for you it wont for any other buyer also and seller will have a hard time selling. And the price he bought it at in 2002 has no bearing whatseover on the value today.

It might be that I agreed to buy a potentially overpriced property. However, it cash flows after management, CapEx, maintenance, and vacancy so it worked for me. With current rents (under market) I'm right at the 1% rule. However I feel like I can get $650/month/unit easy and possibly $700/mo/unit. At current rents and a LP of 92k, that'd be a 1.3% rule. Also I'm motivated to buy because I get married in 6w and would rather not have to sign a 12mo lease with an apartment somewhere.

Thanks for the info everyone. I'm also afraid the deal is dead. Perhaps he'll let me rent the vacant unit month-to-month while I'm trying to find something to buy haha.

If I could get it to appraise for 105k, I feel like I could've made that work. Because I have him paying 4k towards closing costs with our current contract. At 105k, I could pay closing costs and he'd only see a loss of 3k. 

Still open to hearing other options if there are any. Thanks everyone! 

I've had a similar issue with a lender I was using, I continued to lose properties as they were appraising properties will below market. I shifted over to new lender and finally closed on my first property at the end of last year.  Try to get another appraisal from another bank. if not the deal is dead if the seller won't negotiate.

Originally posted by @Jonathan Soto :

I've had a similar issue with a lender I was using, I continued to lose properties as they were appraising properties will below market. I shifted over to new lender and finally closed on my first property at the end of last year.  Try to get another appraisal from another bank. if not the deal is dead if the seller won't negotiate.

 My concern is that an appraisal is another $500. I'm trying to minimize money out of pocket with wedding coming up. Do you think a new appraisal could hit the 112k? i.e. do you think it's possible the appraisal is 20k off of what it could/should be? 

Thanks, 

Nicholas 

ask your agent to run comps in your area and see if you see homes with the same criteria's selling above the 112k mark. If you are seeing majority of homes selling over the 112k mark then I will speak to your bank and see what is going on. most likely you will need to find a new bank. the properties they used fit the same criteria's as yours? trying to figure out why they are so far apart.

Duplexes don’t appraise based on income, but on comps. As for any other fha loan/lender/buyer this appraisal sticks to the property for 6 months. 

@Nicholas Morgan You sound to me like you've fallen in love with the property. There's nothing wrong with that, but don't let your emotions cloud your judgement. If you can't make the numbers work, walk away from the deal. There will be others. Besides, being willing to walk away can be a great negotiating tactic!
I think this is a blessing in disguise, I know you are emotionally committed to this home, but those emotions can quickly turn to regret if you purchase an overpriced home. Examine the appraisal with your agent and if the comps make sense, I recommend that your agent go back to seller and renegotiate to appraised value. Look at this from the seller's side, they have also invested time in this deal and it's a great chance that even if they back out the other buyer will have the same problem. If seller not willing to renegotiate, please walk. All the best!
Can you put 5% down? If so, the look into a Freddie Mac Home Possible loan. The rate will be higher, but it will be conventional with regular PMI so the payment will be about the same. And the pmi is cancelable. On top of that, there will be no upfront PMI. This will probably give you the opportunity to get a new appraisal on the property since it's not FHA at that point.

@Nicholas Morgan

If you feel you MUST have this duplex and it's truly worth $112k to you then the other option is to get the owner to agree to close at $92k with the FHA loan and then get him to carry the paper for $20k over 5 years at 5% interest as an unsecured loan.

If you structure it right your payments won't be much more than a $112k FHA loan and everybody gets what they want.

Standard disclaimer: paying more than appraised value is rarely if ever a "good deal". 

Check with your loan officer whether that's legal or not with FHA.

@Matt Swearingen Even if it did appraise for what you agreed to pay your only getting 1.3% rent for the purchase . Frankly That sucks especIally for Ohio . Just walk away already .how many more red flags do you want ? Keep looking no reason to not hit 2% rule