What are my options...

7 Replies

I recently went under contract on a 4 flex for just under 300k.  The property rents for a total of $3550 for a total cash flow of around $1600.  

The issue is the appraisal.  Due to a lack of 4 plex sales in the area the appraiser had to go about 40 miles away to find comps that were not really comparable at all.  The end result is the property is now appraised for 55k less than what I am trying to buy the property for. The property is absolutely worth the contracted price.

We believe that a comp much closer was missed because for some reason it was listed as a triplex. This property is almost identical to the property I am buying and sold for 300k even..  Even if we get them to consider this property I fear there will still be a big difference.

I would prefer not putting any more cash in, as I am already putting down 25%. 

Any ideas on what I can do? Would a local bank that keeps their own notes be more understanding of the situation and take the cash flow into consideration? 

@Taylor J. There is nothing more annoying than an appraiser doing a poor job. That happened to me on my last deal. Luckily, I worked it out with the seller by negotiating them to seller finance the difference between the agreed price and appraisal. It worked out for me, I got the house and the seller was able to pay for his medical bills. Win-win. 

I was told that they can only use 75% of the rental income which basically puts the appraisal at the same price.  Which doesn't make sense to me.  If they are using it for vacancy it seems crazy considering national average nor my area are anywhere near 25%.  

@Scott Anderson

You can request a second appraisal, pay the difference, or walk away from the deal. THose are the options I see.

Originally posted by @Taylor J. :

I recently went under contract on a 4 flex for just under 300k.  The property rents for a total of $3550 for a total cash flow of around $1600.  

The issue is the appraisal.  Due to a lack of 4 plex sales in the area the appraiser had to go about 40 miles away to find comps that were not really comparable at all.  The end result is the property is now appraised for 55k less than what I am trying to buy the property for. The property is absolutely worth the contracted price.

We believe that a comp much closer was missed because for some reason it was listed as a triplex. This property is almost identical to the property I am buying and sold for 300k even..  Even if we get them to consider this property I fear there will still be a big difference.

I would prefer not putting any more cash in, as I am already putting down 25%. 

Any ideas on what I can do? Would a local bank that keeps their own notes be more understanding of the situation and take the cash flow into consideration? 

On 1-4 unit buildings, the sales method is the ONLY method for appraisers to find a value.  If  there is a comp that's recent and similar (meaning multi family) the appraiser can use it and adjust if it's only 3 units and yours is 4.  If the square footage for the building is the same, but one brings in more money because somebody slammed a 1BR or a studio apartment in it they can adjust.  Get your lender to dispute the appraisal and ask them to submit the comp you feel they didn't take into consideration and see what happens.  

I would not recommend having the seller hold paper for the difference.  You will be over paying for the property.

To your question about a local bank, you should check with them.  Take the appraisal you have with the additional gridded out comp to them and see what they say.  You have nothing to lose.

If the appraiser won't budge, your options are 

  • find a new lender that will order a new appraisal (will cost you a few hundred dollars)
  • negotiate with the seller (which is what most people do) and tell them the property came in a lot lower than what than anticipated and you can only go to the appraised value
  • walk away